Bottom Line: Limited scope

SILENTNIGHT makes one in every three new beds sold in the UK, but the domination gives it less scope for outperformance than it might seem.

The market is mature and growth opportunities are limited for a number of reasons. Beds are low on the shopping list for house movers, the population is static, Silentnight cannot acquire rival businesses without damaging one of its own brands and in the current environment margin improvement is almost impossible.

It is to Silentnight's credit that it increased profits at all for the year to 29 January, helped by its cabinet-making operation and bigger contributions from its US and German subsidiaries.

Pre-tax profits advanced to pounds 12.4m from pounds 12m. Turnover rose 9 per cent to pounds 167m - but better sales were won by cutting prices and the operating profit margin slipped from 7.7 to 7.5 per cent.

The results were in line with indications given by Silentnight in a March profits warning. The total dividend was held at 8p - equivalent to a gross yield of 3.3 per cent, although the final was cut as it readjusted the split between interim and final payments.

Silentnight has a solid balance sheet with cash which it plans to use to finance expansion in UK cabinets and its overseas bed markets. The strategy is sound but the company will have to work hard to establish itself and investors may have to wait for rewards.

Last year earnings increased from 17.1p to 17.6p and there is unlikely to be much more growth this year. Such an outcome puts the shares, unchanged yesterday at 304p but down from 370p prior to the profits warning, on a premium rating of 16 times. Fair value.