Investment Column: Growth in store at Majestic Wine

Capital gains as property investors lift Workspace; Plastic is strong but the outlook weak at 3DM

Tuesday 15 June 2004 00:00
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If Majestic Wine were a white Burgundy then 2003 would have been a vintage year. The wine retailer, which sells bottles by the case, notched up another set of record annual results - its 11th on the trot - helped by last summer's sunshine.

Majestic's like-for-like sales soared by 10 per cent last year, almost twice as fast as the total wine market. The company opened another 10 stores and now trades from 115 sites, including three in France.

With scope in the UK for at least 175 outlets, including eight more this year, its impressive organic expansion plans should ensure profits growth flows for years to come. Its imaginative approach to choosing sites - last year saw openings in a former pine furniture warehouse and an old boozer - means that the main risk is competition from property developers. It is also looking at expanding in Ireland, although it wants to find a parcel of potential sites before committing to anything.

Majestic's strengths include better choice than the traditional high street off-licence and better service than the supermarket chains. It has prospered from the disarray at Thresher, the country's biggest group of off-licences, and looks set to benefit further from Thresher's decision to turn itself into a convenience food chain.

The number of active customers on Majestic's database grew by 10.5 per cent last year to 325,000, showing that it is managing to poach customers from its more established competitors. With just a 3 per cent share of the still wine market, there is plenty to go for in what is a very fluid market.

Its pre-tax profits rose 33 per cent in the year to 29 March to £10.7m, although this included an exceptional gain of £400,000 from a sale and leaseback deal on one property.

Since we recommended laying down some shares a year ago they have soared in value by a third. At 2.4 per cent, the yield is nothing to shout about, but the stock's 17 times earnings ratio looks fair given the racy growth. Keep stocking the cellar.

Capital gains as property investors lift Workspace

Workspace, which grew out of the old Greater London Council's industrial property portfolio, is London's largest small-business landlord. It owns £629m of factories, warehouses and railway arches converted into architects' studios, IT workshops and garages. It survived the business downturn with its record of uninterrupted profits growth intact.

And yesterday it posted a net asset value (NAV) per share up 22 per cent to 1,843p. Its shares (which we tipped a year ago at 1,160p) leapt a further 112.5p to 1,735p to reflect the valuation uplift. The company admits the NAV has been swollen by the increasing attraction of commercial property to institutional investors, rather than from an improvement in rents, which actually dipped. But even if the explosive growth of property as an investment class is unwound partially, rent increases ought to come through for Workspace in the coming year, thanks to the release of properties it has been refurbishing. This ought also to push up the occupancy rate.

With the South-east England economy still bright, and the Government aiding small businesses, Workspace looks set fair for continued growth. Buy.

Plastic is strong but the outlook weak at 3DM

After necking a couple of aspirin and wrapping a cold towel round our head, we dived into 3DM Worldwide's annual results yesterday. The company has developed a revolutionary moulding process that uses recycled material and makes a plastic as strong as steel.

It has also developed a complex web of relationships with associated companies, many of which share directors and investors, which is impossible to understand fully from the published information. These companies have licensed 3DM's technology and/or manufacturing techniques to develop super-strength plastic products, such as pallets, truck parts, yacht hulls, and even cheap housing.

Ken Brooks, 3DM's chairman, says he is excited by the work of these licensees, but their arms-length nature means shareholders have to wait for the proof of the pudding before digesting substantial royalties.

Mr Brooks says the manufacture of tip-up truck beds will accelerate later this year and there could be thousands made each year for use by Daimler-Chrysler, but Mario DiNello - the head of 3DM's US partner, GTI - admits he does not have a relationship with either of DaimlerChrysler's manufacturers. And the nearest 3DM's technology seems to be to use in housing is a "sample house" being built in Michigan by Mr DiNello himself.

Mr Brooks argues that a web of deals with enthusiastic licensees is the fastest way to get a new technology to market. But with yet another partner company created yesterday, and the financial relationship between it and 3DM still to be decided, the picture is getting only cloudier. Like the outlook for the shares. Sell.

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