Basking in the sunshine

Published on Thursday 11 June 2009 20:59

Scrutineer

HRG

271p +5p

NAPOLEON sneeringly called people from this island a nation of shopkeepers. But he got it wrong: the Brits are a nation of garden-dwellers and potterers – when the sun comes out, anyway.

DIY group Homebase yesterday followed rival B&Q in saying that it had seen a surge in gardening and outdoor products in its latest trading quarter to end-May. That helped like-for-like sales rise 3.8 per cent when the best the market had been hoping for was a flat performance.

It followed a 3.2 per cent like-for-like sales rise at the bigger B&Q last week, which owner Kingfisher said was due to a 30 per cent surge in outdoor products in the warm spring weather.

Homebase owner Home Retail Group was not splitting out a precise figure yesterday, but it did say seasonally-related categories saw double-digit growth.

In fact, Homebase's performance was arguably better than its rival because its trading period included the whole of May – up against strong comparatives in May last year when the weather was much better. B&Q's trading period only went up to 2 May.

And while HRG's Argos catalogue shopping chain did less well, with like-for-like sales down 2.8 per cent in the quarter, this was still better than the City consensus expectation of a 4 per cent fall.

Argos' consumer electronics sales are holding up well in the financial downturn, while trading in bigger-ticket items like furniture and homewares continues to be tough.

Taken in the round, there was nothing tree-uprooting about HRG's performance, but they were definitely durable numbers in dire conditions.

The latest figures will do nothing to take the positive wind out of the group's share price, which has risen in value by a third over the last three months, outperforming the DJ Stoxx European retail index by 16 per cent.

The market likes the low-ticket nature of a lot of HRG's offering, from mobile phones to seeds for the garden, as we struggle through the downturn.

Fewer people are moving house and so helping sustain DIY sales as they decide to do up their existing home instead.

And the pricing of many of Argos' products is keen enough to provide resilience in difficult conditions when more upmarket players may look a little extravagant.

Argos and Homebase have also benefited from the demise of rivals such as Woolworths and MFI.

HRG said toy sales in the latest trading period were strongly ahead, doubtless helped by the collapse and exit from the high street of Woolworths.

HRG will also clearly be hoping Britain has a good summer, and that the boost its outdoor products got in the spring can therefore be continued.

'IT'S business, Jim, but not as we know it." Trekking through the astral planes that football inhabits, it is impossible to avoid the strident disconnect between that spectacular and crazed world and the rest of business.

Recessionary Spain? Real Madrid splash out 80 million on Ronaldo and 56m on Kaka: "Hola, anybody out there?"

And Manchester United are more than likely to take the cash for the pirouetting pouter. Why? Because he is increasingly irritating and they have 700m of debt – they have to find 65m a year just to service that debt (it's just as well their fan base runs from Stevenage to Japan).

Meanwhile, Liverpool FC's American owners have seen the club's debt double in the past year and it looks like the promised new stadium will be built in the next millennium.

And currently reclusive Mike Ashley, Sports Direct International and Newcastle United owner, has taken a bath of more than 100m on his decision to buy the north-east club and now wants out.

Chelsea, under Russian billionaire Roman Abramovich, have not balanced the books since he took over and attempted via a chequebook to buy trophies on the hire purchase system (successful domestically but not, to the chagrin of some, in Europe).

Manchester City? Owned in passing by a former Thai prime minister accused of corruption, they are now in Middle Eastern hands, and threatening to give Abramovich more than a run for his roubles in the cash-splashing stakes on players.

Icelandic bankers, meanwhile, seem to come and go at West Ham United, adding to the gaiety of the nation outside the East End of London but not to financial stability.

Sports broadcaster Setanta looks on the precipice of administrative receivership, with the possibility that a number of Scottish Premiership clubs will not get their money.

In the crazy looking-glass world of the business of football it all seems to make a kind of grotesque sense, even when the numbers don't add up (which is most of the time). The game's money men seem to be forever taking the positives out of a financial 5-0 drubbing.

Leon Esterhuizen of RBC Capital Markets

ONE TO WATCH

Central Rand Gold

31.5p +2.5p

Scotsman says BUY

IN AN environment like this, we believe some insurance to be well worth the effort. Gold has long held the special place of being a "safe heaven" in times of market turmoil. This may not imply a higher gold price, but more often than not it does imply at least an asset that remains stable when everything else declines rather fast.

Central Rand Gold (CRG) is a gold mining company in South Africa that is re-opening old mines south of Johannesburg, many of which closed down in the early 1970s. When these mines were worked, the gold price (fixed at $30 per oz for most of the time) was too low to allow extraction of lower grade gold reefs. CRG will be building a mine that aims to extract these resources over the next 20 years or more.

Recent disappointing performances have seen the share price under significant pressure. Although this is justified, we believe the ore body to be worth far more than what the market is willing to put on this share. Of course, the risk of a large fund raising will tend to depress the stock, but the current low price could also offer an opportunity for a bid for the company.

Even in the absence of such an event, we believe the company will be able to demonstrate both the viability of current plans and an update of future growth plans – which should make the stock worth more than what the market is currently prepared to pay for.

We believe CRG offers investors an attractive risk-reward with good geared exposure to the gold price (in rand terms), but with the added advantage of an opportunity to pick the stock up at levels that could well be low enough to offset much of this risk, while offering some insurance against the very uncertain global economic future.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

London & Stamford back on hunt for acquisitions

SMALL BUT BEAUTIFUL

AIM-listed London & Stamford Property reported a full-year profit of 24 million and said it intends to raise money to fund more acquisitions.

The group, which has made five acquisitions since it listed in November 2007, also said it was considering a move to the main market and conversion into a UK Real Estate Investment Trust.

London & Stamford said it is looking to secure debt funding for its two recent acquisitions, refinance its existing HBOS funding and raise more equity.

It said: "We hope to have approximately 90m of our own equity and 150m of undrawn HBOS bank facilities at our disposal and we then intend to raise further equity."

The group did not provide directly comparable results. Profit for the year was 24m, compared with 400,000 for the five months to 31 March 2008. Net income rose to 3.1m in the year from 600,000 for the five months.

But despite the upbeat report, London & Stamford also said it believes that the global economic difficulties are likely to continue.

It said: "The outlook for the economy remains very difficult to predict, but it seems likely that the impact of the global credit crunch and economic recession in the UK will persist in the short and medium term."

Oil firms have mixed fortunes despite rising crude prices

SCOTS STOCKS

OIL company shares were treading water yesterday despite crude oil continuing to rise – it topped $73 yesterday on hopes of a strong recovery in demand.

Cairn Energy, which is set to begin drawing first oil from its Rajasthan fields as soon as it reaches an agreement over price with state-owned refineries, slipped 27p to 2,515p. Dana Petroleum eased 10p to 1,307p and Venture Production closed 10.5p lower at 795p. On the up, Melrose Resources, the Edinburgh-based oil exploration and production company, rose 4p to 286p, despite Moody's putting it on negative watch for a possible credit rating downgrade.

Wolfson Microelectronics, which said earlier this week that its parts were not in the latest version of the Apple iPhone, fell a further 5.1 per cent to 106.25p yesterday.

Optos, the retinal scanning company, which had been rising strongly since reporting an interim loss last month, dropped 8.5p or 12.3 per cent to 60.5p.

IT minnow Pinnacle said it had agreed a "pivotal" acquisition to buy Northampton-based Accent for 661,450, in an all-share deal. Pinnacle rose 7.4 per cent to 0.145p.

IndigoVision, the digital CCTV company, which appointed a new head of sales for the Asia Pacific region earlier this week, rose 5p to 415p.