The Investment Column: Stoves cooks up a storm as confidence returns

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The Independent Online
Stoves chief executive John Crathorne describes the trading performance of his cookers group as "more measured" compared with the frenetic activity of last year. That is something of an understatement. The switchback performance of the shares since their flotation at 163p in June 1995 came after initial euphoria was replaced by disappointment with the group's maiden figures for the first half of the 1995-96 year. A combination of rising raw materials prices, a hot summer and then a 60 per cent surge in demand meant Stoves struggled to cope. At the same time, a rising tax charge as the group's store of tax losses is used up has constrained earnings growth.

Mr Crathorne and his team have clearly found life as a public company a little more distracting than they expected. But after a 7p rise to 297.5p yesterday, investors have little to complain about in the shares' near- 45 per cent outperformance against the rest of the market thus far and there is still plenty of life in the Stoves story.

Yesterday's 57 per cent leap in pre-tax profits to pounds 2.37m in the six months to November came on the back of the first signs of revival in consumer confidence for years. Having risen by more than 4 per cent in 1996, Mr Crathorne is forecasting another 5 per cent increase in the British cookers market over the next 12 months. With less than 5 per cent of Stoves' turnover going overseas, the group's heavy reliance on domestic sales should stand it in good stead in the future.

But that is the icing on the cake. The group has already proved its ability to take on international groups such as Electrolux, GEC and Whirlpool and beat them at their own game. It reckons it has raised its market share by around 2 percentage points to 18 per cent over the past 12 months, mostly through growth in freestanding electric cookers, which saw a record number of product introductions. This produced a leaner margin mix, although operating returns on sales still advanced smartly from 5.5 to 6.1 per cent, boosted by the completion last summer of the group's change-over to its own revolutionary brand of production technology.

Mr Crathorne says the rate of new product launches means the group will never be short of ways to squeeze out further efficiencies. Longer term, the launch into Germany later this month with a new range of electric models, to be followed soon by a move into France, will open up two markets which are together worth around four times that of the UK. Continental operations could take another two years to be contributing fully and Stoves may first need to use its minimal gearing to pick up a suitable brand name to tackle the notoriously xenophobic French market.

For this year, Kleinwort Benson, the group's own broker, is going for profits of pounds 5.8m, rising to pounds 7m next, putting the shares on a forward multiple of 19, dropping to 16. Hold on.