View from City Road: Round one to Budgens

JOHN VON SPRECKELSEN, chief executive of Budgens, has delivered the goods on time and as promised. Barely more than a year after he took over, the high street supermarket chain is back in profit.

At the pre-tax level Budgens has made a profit of pounds 4.6m in the year to 26 April compared with a loss of pounds 14.7m the year before, when there was a large negative exceptional item. Trading profit is pounds 6.5m against pounds 3m. And gearing has declined from 142 to 22 per cent. There is no dividend, but management intends to pay one next year. Earnings per share are 3.5p compared with a loss of 13.3p.

Mr von Spreckelsen attributes the improvement to his methods. Sales rose - turnover was up 6.8 per cent to pounds 290.7m - as the stores were open longer hours and the efficiency of the Wellingborough distribution facility improved. Distribution costs fell by pounds 900,000. Better buying improved gross margins, and tight cash management allowed the gearing reduction.

Budgens has won round one. It is starting the next well. It has saved more than pounds 1m so far this financial year after joining a consortium to improve buying power. It also plans to add at least six stores to its chain of 100 and has embarked on a store improvement programme.

That adds up to capital expenditure of more than pounds 10m, with depreciation running at pounds 6.5m.

But while the management's admirable attention to detail has paid off so far, time will tell whether its concept will work. For in spite of reassuring words, there are still grounds for wondering whether out-of- town superstore openings will erode market share in Budgens' high street supermarkets, which are carefully tailored to meet local needs.

The shares have outperformed the market by 19 per cent this calendar year, and at 41p yesterday, unchanged on the day, are on a prospective multiple of about 14 times market estimates for 1992-93. That is almost as high as Sainsbury. Hold.