Wait for Thorn's strategic review

the investment column
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The Independent Online
SO MUCH FOR the theory that demergers are supposed to create value for shareholders. Ever since Thorn and EMI did the splits 18 months ago all it has done is highlight the deficiencies of the separate groups.

Every time one of them gives a trading update it seems to spark a fresh share price fall and profit downgrades. Yesterday it was Thorn's turn and so it came as little surprise when it unveiled another disappointing performance. A warning that earnings for the year to March would come in at the bottom end of expectations was accompanied by the resignation of its chief executive.

Appropriately enough given that the Winter Olympics are in full flow, Thorn's share price graph resembles a ski slope, with its shares falling from more than 400p on demerger to close down another 9p to 146.5p yesterday.

Thorn's future now hinges on the outcome of its strategic review. The Radio Rentals chain is still losing business at an alarming rate. Thorn is hardly to blame for the slump in sales caused by the rise in a rise in insurance premium tax. Building society windfalls also prompted customers to buy a TV or video rather that rent one.

But the fact is the business faces real long-term problems. The rental market is in decline, with industry sales predicted to fall by at least 5 per cent a year. And the group has been slower than Granada to start using direct sales techniques. It will be a long hard grind for Thorn to get UK sales moving in the right direction again. The best solution is to join forces with Granada, but that could pose insurmountable competition issues.

Thorn would also be well advised to sell its US business, where the group has been guilty of poor management and allowing competitors to steal market share.

Thorn's prospects hardly look promising. But with the share price so low already it is worth waiting to see if it can produce a rabbit out of the hat when it announces the results of its review in May.

SG Securities has downgraded profit forecasts from pounds 125m to around pounds 118m for the year to March, putting the shares on a prospective p/e ratio of just 8. Hold.