Bottom Line: Signet's mixed signs

JAMES McADAM, chairman of Signet, was clearly delighted to be proving the bears wrong for once. An 11 per cent increase in Christmas sales - albeit against pretty dismal comparatives - was better than the doomsters had been forecasting.

While that increase was driven by the US, where the recovery is much more advanced, even the British jewellery chains - excluding the tainted Ratners - are making progress at last.

That adds up to break-even for the current year, better than even the most optimistic analysts had predicted.

It would be wrong to get too carried away by the excitement, however. A return to profits is merely the first stage in rebuilding the group, and there is likely to be a lot more pain before shareholders will see any rewards.

The deficit on distributable reserves in the balance sheet stood at pounds 66m last January, and will climb further this year. Arrears on preference dividends are already pounds 60m and growing by about pounds 30m a year.

While holders may be persuaded to forgo some of their claims, the equity they will demand in return is likely to have a severely dilutive effect on ordinary shareholders. The banks owed pounds 300m-odd are also likely to want a share of the action.

The City clearly wants to believe that Signet will be the next retail wonder stock, and marked the shares up 3.5p to 31p. But until Signet actually implements a capital reconstruction, buyers have no idea what they are getting.