New Look offers prospect of growth in store

Tullow Oil; Science Systems

It has been out with the old and in with the new at New Look. New stores, a new warehouse, new product ranges, and all thanks to the new management. The old, you will remember, was thrown out in 2000 after the then chief executive, Jim Hodkinson, caused a rumpus by patting a woman's bottom at an industry dinner.

It has been evident since the end of last year that Stephen Sunnucks, Mr Hodkinson's replacement, has solved several of womenswear chain's most intractable problems. The shares have proved the most successful in the sector, up some 160 per cent since November.

New Look had suffered from poor distribution, cramped and uninviting stores, and a product range with too many strappy little numbers for teenagers and not enough for the 25 to 40 year old range the group also wants to attract.

Tick them off. The distribution problem has been eased by supplementing its national distribution centre, ridiculously situated in Weymouth, with a warehouse in Doncaster. Mr Sunnucks has started Project Heartland to move 160 of its smaller stores to much bigger locations, and some major refit work will be carried out on the rest of the 485-strong portfolio. And the chain has started selling coats and leather shoes and, in the next few weeks, its own designer range.

What this adds up to is an 8.6 per cent increase in margins in the 10 weeks to 23 March, partly because the company didn't have to run a February sale to get rid of stock that no one otherwise wanted to buy.

UK sales were up more than 15 per cent and like-for-like, stripping out the extra selling space, the increase was 8.3 per cent. There was also talk of a strong performance in France, where the chain has a small presence. Group profits will certainly now be more than £56m for the year to March, with £63m now expected next year. That puts the stock on a forward price-earnings multiple of less than 12, which is a discount to most of its peers.

The gap is more likely to be closed by the other retailers' ratings falling as the high street spending boom eases. But there is enough sales growth and margin expansion in prospect at New Look to keep the shares worth buying.

Tullow Oil

Independent oil exploration and production groups seem to be the favour of the hour for investors, with the crude price at 6-month highs and Enterprise Oil getting snapped up this week. So yesterday's full-year figures from Tullow Oil were well timed. And pretty spectacular they appeared, too. Turnover was up 882 per cent to £76.6m, while operating profit, before exploration costs, increased by nearly 2,000 per cent to £26.3m.

The explanation for this is pretty simple. Last year, Tullow, a small player, made a transforming acquisition when it bought southern North Sea assets from BP for £201m. Some 90 per cent of the uplift in turnover was down to this acquisition, without which the figures would have been flat.

The deal has given Tullow an attractively balanced portfolio. The North Sea provides real production and steady cashflow, which can be used to pay exploration further afield.

The company's other oil and gas assets include interests in Pakistan, Bangladesh, India, Ivory Coast, Romania, Egypt and Algeria, with the Ivory Coast the most developed.

This balance is becoming popular among the smaller players, such as Soco International, Dana Petroleum and Cairn Energy, and it appears to be a sound enough strategy.

Teather & Greenwood, the broker, estimates that Tullow's proven reserves are worth 120p a share – the stock closed yesterday down 3.5p at 106.5p. So the potential of its undeveloped assets come for nothing.

The stock has had a good run, leaving it on a forward multiple of 17. Although high risk, the growth potential of this company is considerable; earnings per share are forecast to triple in 2002. With continued tension in the Middle East, this one is a buy.

Science Systems

Science Systems was founded 22 years ago to provide the software systems that allow companies to track satellites and convert their signals into images, such as the swirling weather on television bulletins. On the AIM market, it is one of the few software firms to avoid a profit warning after the Millennial tech boom went bust. Yesterday it posted a 31 per cent rise in sales and an 85 per cent rise in pre-tax profits to £5.1m.

It has expanded carefully into new industries and, after the acquisition of Coda in 2000, into accounting software, and now boasts an enviable diversity of clients. It is these, numbering more than 2,000, who should keep growth strong as the company sells them new and upgraded products.

Though the stock is on 23 times this year's earnings – which is fair, not cheap – its respected management is worth backing. Be warned: 40 per cent of the company is owned by staff, so stock is hard to come by. But there is no rush and moves to raise its profile in the City should boost liquidity. One to tuck away.