The Investment Column: Marginal cheer for Hamleys

HAMLEYS decision to return pounds 6m of funds to shareholders via a buy-back of B shares will be welcome news to the toy company's investors who have had no fun watching the company's value slide over the last year or so.

A victim of the market's lack of appetite for small company stocks until a recent mini-revival, Hamleys shares have fallen well below their high of 439.5p in November 1996.

With pounds 3m of cash expected at the year end and with strong cash flow, Hamleys can certainly afford the buy-back and signals that there are no plans for any acquisitions. This news, together with a decent set of results, pushed the shares 14.5p higher at 273.5p.

Though profits rose 10 per cent to pounds 7.6m in the year to January, Hamleys is finding it difficult to move the sales line. Sales at the flagship Regent street store were flat due to lower tourist spending because of the strong pound. And like-for-like sales are only marginally ahead in current trading.

The better news is in the margin, with higher own-brand penetration offering scope for improved returns not just at the main store but in satellite units at airports too, where own brand sales of Hamleys teddy bears and so on are higher.

Last year's pounds 8.7m Toy Stack acquisition is performing well and contributed pounds 1.5m to profits in its first eight months. A roll-out of more stores in shopping centres is planned.

Management is also planning more franchise stores in the Middle East and Europe, and a pounds 1m refurbishment of the Regent Street store starting next spring should provide a boost.

On analysts' forecasts of pounds 9.3m this year, the shares trade on a forward rating of just 9. Even though this is likely to be a difficult year for retailers, that looks too low.