Dunelm
Revenue £836m Dividends 21.5p
In most cases, when a company has just acquired a new chairman and is about to greet a new chief executive and finance director, it would be a case of waiting to see what plans the new management have for the business. Dunelm is the exception. John Browett, who used to run Dixons and (briefly) Apple’s retail operation, starts as chief executive in January, but he inherits a business that has made clear where it is going.
Dunelm was floated in 2006 and has a strong record for growth since, but it is still relatively under-exposed to the southeast. The homewares retailer has 149 stores at present and a good reputation on price and believes that there is room for 200 in the UK. It has indicated that revenues can be raised by 50 per cent from these new store openings and from expanding its online sales, at present about 6 per cent of the total, while increasing sales from those existing stores by improving the range on offer, for example by emphasising seasonal lines.
The retailer has doubled its warehousing at Stoke-on-Trent and has built a new IT platform. Those new stores see a payback on investment in an average of 30 months. New sites are becoming harder to find, at least in the southeast, and the rate of openings this year will be down a little.
All this investment needs paying for and capital spending will be ahead this year. Margins were held back a little in the year to the start of July by the need to shift excess stocks of furniture, the legacy of too hasty an expansion into this area, but pre-tax profits were still up by 4.7 per cent to £122.6 million.
Total revenues were almost 13 per cent higher on a strictly comparable basis, like-for-likes by 3.4 per cent. The stability, despite the wide-ranging change in management, comes because more than half the shares are still held by the founding Adderley family. This may also have influenced dividend policy; not only is the total up by 1.5p to 21.5p, but a special payment of 70p was made during the year, the fourth.
Another is in prospect this year. Strip this out, and the shares, off 3½p at 901p, yield 2.7 per cent. Those extra payments move the price multiple up to a chunky 17 times earnings, but they still look good value on a long-term view.
My advice Buy long term
Why The retailer’s targets for growth are clear and achievable, while its lack of exposure to the southeast is a strong advantage
Asos
Size of recent stake sale 3.1%
One institution plainly has taken a view on the unexpected and immediate departure of Nick Robertson, the founder of Asos, as chief executive at the start of this month. The unnamed fund manager put 3.1 per cent of the shares through the market at £26.73, sending the shares back 155p to £26.22.
Investors will not need reminding that Asos shares are horribly volatile. If said institution had bought five years ago, when the shares were little more than £10, it would have done well enough. If the fund manager bought at any stage since the start of 2014, when they were sitting at £70, there will be reason to be sorry.
Mr Robertson still speaks for 8.4 per cent of the shares. He remains a non-executive director, but personal circumstances may tempt him to sell. Asos will report flattish profits for the last financial year next month, reflecting the £110 million investment going into new IT systems and a Berlin distribution centre.
The retailer is also having to cut prices to make it more competitive overseas because of unfavourable exchange rates. On a meaningless earnings multiple of about 60, I would not be rushing to buy.
My advice Avoid for now
Why Rating is impossible to justify on any rational basis
Ricardo
Year-end order book £140m
I have been pushing shares in Ricardo for some time now, and they have almost doubled over the past couple of years.
The company is not widely understood. Most think of it as an engineering consultant, helping to design new ranges of vehicles, but it is much more widely spread, manufacturing niche products, such as engines for McLaren supercars, and advising on environmental standards in water and energy, for example.
The key to its growth has been a succession of highly specialised acquisitions that have expanded the skills on offer to clients. Last year was a relatively quiet one for this, while a big contract with McLaren for its last range of cars came to an end.
This meant that a 9 per cent rise in both revenues and underlying pre-tax profits, to £26.8 million, in the year to June 30 was achieved largely from organic growth.
At the year’s end, Ricardo completed the purchase of a business that takes it into the certification of new rail vehicles. The deal is a typical one, in that the same customers can now also be offered its core engineering skills. Last year it bought a business that allows the complete design of new motorcycles and then won a contract on the back of this from one of the biggest manufacturers, believed to be BMW.
The new range of McLaren engines starts to ship next summer, a contract worth more than £200 million in due course. Further purchases will arrive when they will. Off 14½p at 879p, the shares sell on 18 times earnings and look a safe bet.
My advice Buy long term
Why Prospects for Ricardo continue to be excellent
And finally . . .
Swings and roundabouts for Henderson Group. The fund manager, after a string of acquisitions in Australia, has indicated that no further deals are likely and that it will return surplus capital to investors instead. There is a roadshow in Australia this week. Henderson has just indicated a £25 million buyback programme that starts on Monday. The shares rose accordingly; yesterday they fell as JP Morgan cut its share price target. Many quoted fund managers are stuffed with cash with, in these markets, not a lot to do with it.
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