View from City Road: Fayeds put on a brave face

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The Independent Online
Mohamed Fayed is fond of posing in the Harrods food hall in a straw boater and the full rig of a purveyor of comestibles to the gentry. More recently, he took a turn as one of the store's 'green men', opening taxi doors for customers.

Yesterday Mr Fayed and his brothers had to perform a more disagreeable duty to keep their bankers happy and their gearing down throughout the group.

House of Fraser sold its entire 156.03 million shares in Sears at a pounds 61m loss. While House of Fraser was attempting to put a brave face on the disposal of a stake it had held since 1987, more than two years after the Fayeds had acquired the Fraser stores group, it is none the less a forced sale induced by the state of the group's balance sheet.

The last published accounts for the year ending January 1992 showed bank loans of pounds 150m payable in 1993- 94, pounds 50m in 1994-95 and more than pounds 560m in 1995-96. Total borrowings exceed pounds 775m. Although the group made an operating profit of pounds 53m on turnover of pounds 1.2bn, an interest bill of more than pounds 99m forced it into losses.

It is hard to see the economy coming up quickly enough to relieve these gearing pressures. Further disposals or management buyouts may be in store.

And what about the Sears share price? No doubt Goldman Sachs had an upbeat story to tell about the company's prospects as it did the rounds of institutions, so Sears yesterday fell just 4p to 101p.

But it would be wrong to assume that the placing lifts all the clouds overhanging the shares. In the core footwear business there are signs that the customer is at last returning. But the specialist retail operations that initially did so well in the teeth of recession, such as Olympus Sports and children's wear, have begun to flag.

Ignoring non-recurring items, analysts at Nomura are forecasting a 20 per cent recovery in pre-tax profits to pounds 111m in 1993-94 after a slip from pounds 96m to pounds 92.5m in the year ended January. But a prospective p/e of almost 20 is no bargain given the company's far from sparkling performance in recent years.