Bottom Line: Jennings' tough task

HOUSE of Fraser naturally denies it is disappointed with the price set for its flotation but, at a prospective multiple a quarter below the rest of the sector, the pounds 413.3m valuation is a mere shadow of estimates when the pathfinder was published just three weeks ago.

Since the pathfinder, the lack of direction in the stock market, even more than the 2.2 per cent fall in the FT-SE 100 Index, is doubtless partly to blame. But the team at Warburg was always going to find it difficult to persuade investors to pay a premium for a down-at-heel department store.

The group's performance has improved considerably since Andrew Jennings took over as managing director two years ago. Operating profits have more than doubled from pounds 20.4m in 1992 to pounds 43.9m in the year to January, sales per square foot have risen 12.5 per cent to pounds 144 and operating margins have widened from 3 per cent to 6.2 per cent.

The group is confident that other planned changes - such as better targeting of merchandise, store refurbishments, and increasing the proportion of part-time staff - mean that the real improvement has yet to come. Re- establishing House of Fraser as a premier department store chain will, however, tax even Mr Jennings' skills.

A prospective multiple of just 13 and a yield of 4.2 per cent, based on analysts' forecasts of pounds 48m and a 6p dividend, is generous enough to justify giving him the benefit of the doubt.