Fraser's bargain buy puts rivals in shade

Published on Friday 1 April 2005 12:01

WHO’S the retail Daddy on Princes Street these days? No doubt about it; with its long-established store at the West End and this month’s capture of Jenners in the East, House of Fraser stands tall.

Its shares too have been lifted by the purchase since analysts believe there is a 30 million gap between the book value of the Jenners property and its current market value, making the prospect of a sale and leaseback deal, and with it a chunky cash boost to profits, a distinct possibility.

Part of the purchase price of 49.5million included an injection of cash into the Jenners pension fund of 3.4m and the profitability of the business must surely be enhanced if only from the obvious benefits of improved purchasing power and cost savings from consolidation of the Jenners administration and finance functions.

But will it keep its traditional customers while appealing to new, younger consumers? The next couple of fashion seasons will give us a clue, but in the meantime HoF is coping with the uncertainties of the retail market by pressing on with further store openings later this year in Maidstone and Dublin.

Elsewhere in the high street, shares in fashion retailer Ted Baker have been attracting some attention following an announcement that it bucked the trend and posted a 17 per cent sales increase in 2004. For the time being, sales and profit growth look assured and the shares, though already on a relatively demanding rating of 16, are being tipped by some analysts as worth considering.

Do customers choose to buy 95 Ted Baker shirts in Jenners with Provident cheques? Shares in Provident Financial, the lender described as servicing the "sub-prime" market, have been marking time as the sector leader adjusts to long-term changes in the behaviour of its traditional consumers.

As more and more of the people once patronisingly described as the "great unbanked" find that their employers insist they must have a bank account for their funds to be transferred, the banks have not been slow to offer borrowing facilities, whether by credit card or overdraft. The result has been that volunteering to pay for goods with a Provident cheque has steadily become less appealing. The company is responding with its own bank brand but time may be against it. On the other hand, another operator in the same sub-prime market, Cattles, which has its focus on consumer loans and debt collection, is attracting buy recommendations.

Not to be confused with either of the two previous businesses is Friends Provident, the life assurance company which joined the stock market four years ago and has proceeded to fulfil its potential by undertaking a series of smart acquisitions which have greatly assisted the upward direction of the share price. With profitable trading both in life assurance and its asset management activities, and its pensions business looking set to recover in the medium term, the business looks to be in good shape. Further increases in the value of the shares are anticipated by analysts.

Elsewhere, the motor trade is generally an unpredictable sector for investors, but in spite of the slight decline in new car registrations, shares in car dealer Lookers have been looking strong lately as a result of the business increasing its market share and its passing of the 1 billion annual sales mark.

As well as selling cars, the company also specialises in the more profitable parts and accessories side of the sector and here too trading has been good. Further consolidation in the UK car industry is expected and on this form Lookers would appear to be set to be able to claim a position near the front of the grid.

Finally, building industry businesses are still making good profits despite the current uncertainties over the future of the property sector as a whole and material supplier Wolseley has been benefiting both from its UK and its US operations. Increases in US interest rates do not seem to be holding back the residential property market where demand remains brisk and the company remains delighted to fulfil it.

• Drew Johnston is a business writer and MD of Blueprint Media