BOOKER GROUP
Like-for-like sales, ex tobacco 0.5%
There seemed no reason why Booker’s £40 million purchase of the Budgens and Londis convenience store chains, announced in May, would cause the competition authorities any problems, given their and Booker’s small combined share of a market where the big players, such as Tesco and J Sainsbury, have been expanding fast.
However, the company’s purchase of Makro, the German-owned cash-and-carry operation, in 2012 was held up by a Competition and Markets Authority inquiry that came to nothing, so you never can tell.
The latest deal has gone through without a hitch. The question for investors is whether it will be as successful as Makro, which was bought making a loss and is now contributing about £20 million a year to profits, or whether it will be one of those damaging diversifications in which a company’s core strengths fail to be transferred to another sector.
In retail, Booker has the Premier chain and the much smaller Family Shopper. The four businesses do not greatly overlap. Premier is strong in the north and Midlands, Londis in the southeast. Budgens is more upmarket, Family Shopper has local stores on estates.
Of the stores being bought, only 20 are directly owned, the rest operated on a franchise basis, so the people running them will continue to do so. The advantages in terms of putting the two together are clear enough. The stores being acquired deliver sales of £1.4 billion a year, while Booker’s total is £800 million, so its existing distribution centres will be more efficient.
Booker chose to bring forward a trading statement yesterday to coincide with the CMA approval. A rise in like-for-like sales, including Makro, of 0.5 per cent in the ten weeks to August 28, excluding tobacco, may not look terribly impressive, but the poor weather held back the consumption of ice cream and soft drinks. Tobacco sales were 6.6 per cent lower because of the ban on displays.
Booker shares, strong on Wednesday, were off 2¾p at 176¼p and sell on a chunky 25 times’ earnings. I have been tipping them for some time now, and those who took my advice have no reason to complain. Given the benefits of the latest deal, that advice stands.
MY ADVICE Buy long term
WHY Shares are on a high rating, but the potential benefits of adding extra convenience stores sales seem to justify this
GO-AHEAD GROUP
Revenue £3.2bn Dividends 90p
Unless you are a user of its services, it is hard not to feel a degree of sympathy for
Go-Ahead Group, because many of the problems that caused the latest figures for the year to the end of June to undershoot expectations are beyond the company’s control.
In September, its Govia joint venture took over the Thameslink franchise which produced an unexpected loss amid bottlenecks at London Bridge station because of rebuilding. No improvement is expected soon; the franchise will not be providing the sort of returns
Go-Ahead expects until 2016-17 at the earliest.
The need to push back by a year the target of £100 million in operating profits from the bus operations is likewise beyond its control. The second half of the year experienced a £4.5 million shortfall in incentive payments paid for good services in London because of the appalling traffic congestion.
Likewise, there were delays caused by roadworks in Oxford and Brighton at its regional operation. Passenger journeys and miles operated fell as a result, and the situation in London is not going to improve soon.
This, and the need to retain cash for any forthcoming franchise gains, such as the Northern and TransPennine routes, will probably push any extra cash returns to investors out by another year as well, which largely explains the 135p fall in the share price to £24.01. A 6.5 per cent rise in dividends puts the shares on a 3.8 per cent historical yield, but that does not suggest any tearing urgency to buy.
MY ADVICE Avoid for now
WHY Any extra returns to investors pushed further out
MCCOLL’S RETAIL GROUP
Growth in total group sales 3%
There should be some read-across from Booker to McColl’s Retail Group. McColl’s, however, is not mentioning the weather or falling cigarette sales for a subdued performance this summer, preferring to blame the competition from the big supermarkets.
The company is gradually converting its estate of 1,346 stores out of the newsagent format and into higher-margin premium convenience outlets, about 1,000 of these by the end of next year, and these had the best performance, which seems to justify that strategy. Like-for-like sales were down by only 0.4 per cent in the quarter to the end of August, against a fall of 4.6 per cent at standard stores and newsagents. It is also finding new sites to buy, off the high street where it is hard to compete with the big supermarkets.
The shares, floated at 191p early last year, have suffered from the malaise in the grocery sector, adding ¾p to 157p to reflect the solid enough achievement in a difficult market. The fall since the listing looks overdone, and it means the shares enjoy a substantial yield of 6.5 per cent. At some stage the market perception will change, I suspect. For now, that income looks a good reason for owning the shares.
MY ADVICE Hold for income
WHY Share price decline makes yield attractive
And finally . . .
Medium-sized law firms have been acquired by others from outside the sector since 2012, after a relaxation of the rules. One of the quoted consolidators is Fairpoint, which bought one practice last year and another this summer. The company offers fixed-price products for services such as divorce. Legal services looks like being the driver for growth, not least because the other operation, insolvency, is being held back by the effect of low interest rates, and legal is now about two thirds of the business.
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