The Investment Column: Thorn EMI worth holding

There was nothing particularly new in Thorn EMI's first-quarter results yesterday, which showed a respectable 13 per cent rise in pre- exceptional profits to pounds 68m despite some softness in the music side. The other important aspect of yesterday's announcement was further details of the proposed demerger of the company into its constituent parts, but as Sir Colin Southgate drily commented that was simply 140 pages to tell shareholders they would be getting two shares instead of one.

EMI Music benefited from new releases from George Michael and Tina Turner, with sales and operating profits up 4.7 per cent and 17.4 per cent respectively in local currency terms. Foreign exchange movements cut that back a bit but the division still looks an attractive morsel to potential bidders despite Sir Colin's protestations yesterday that he hadn't talked to any possible buyers for months.

Thorn, the rentals side continued to show its paces, with sales up 9 per cent and operating profits 12 per cent better at pounds 41.1m. This unglamorous side of the company looks more and more attractive as time goes by with much steadier income than other retailers and a growing market as PCs expand the white goods universe and rent-to-buy enlarges the target audience.

A possible pounds 30m hit to cover the return of leases transferred to the now collapsed Escom computer retailing business is a nuisance but a one- off irritant. Elsewhere, HMV, which will stay with Thorn on demerger, had a good quarter with sales up almost 18 per cent to pounds 171m.

All good news, then, but from the investment perspective it is hard to believe the revaluation of Thorn EMI has not already taken place. Since the beginning of 1995, the shares have soared from pounds 10 to pounds 16.93 yesterday, down 42p as the market came to the conclusion that there was little still to go for with a price/earnings ratio in the high teens swamping a respectable but dull earnings growth rate of about 12 per cent. High enough on fundamentals but with the prospect of a bid for EMI and Thorn going well the shares are still worth holding.

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