Hopes That Carpetright Can Continue Its Roll as Pundits Turn Bearish
Pain, Derek, The Independent (London, England)
Tomorrow it will be possible to judge whether Carpetright is still on a roll. The second time around creation of Lord Harris, fund raiser for the Tories and carpet salesman extraordinary, is expected to produce another rousing profit performance.
The stock market is looking for a year's outcome near pounds 27m against the pounds 19.7m last time.
There have been fears the carpet retailing group could be a casualty of the building downturn which has hit so many retailers including the do-it-yourself sheds. But Carpetright has achieved a surprising ability to ignore such humdrum hindrances with profits making spectacular headway from pounds 2.8m in 1992.
It came to the stock market at 148p three years ago; the shares closed on Friday a little below their 624p peak.
Lord Harris, as plain Phil Harris, created the old Harris Queensway carpets and furniture operation. After a sudden profits collapse he was forced out and the company was taken over by a consortium headed, by supermarket entrepreneur Jimmy Gulliver, in a pounds 477m leveraged buy out.
But HQ, renamed Lowndes Queensway, collapsed with debts of more than pounds 200m.
Carpetright had a 116 shops chain, put together over four years, when it made its market debut. It is now nudging 250 outlets embracing the core Carpetright operation plus Premier Carpets, with concessions in other people's stores, and Carpet Depot, a superstore concept.
Although making headway, the market had another uneventful session last week; the results of the Russian election could be a significant factor this week.
The influential Schwartz stock market newsletter is becoming increasingly convinced the bull market is over. It says: "The lessons from the past now suggest even more strongly that the next big move for UK equities will be down."
Although they have lost some of their exuberance recently, an outstanding feature of the market this year has been second- and third-line shares which have generally outperformed the more illustrious blue chips.
But the newsletter, the work of David Schwartz operating from Stroud in Gloucestershire, even pours caution on the cult of the second liners.
It points out that small companies generally outscore blue chips in the opening months of a year. "But the trend soon changes for the worse. Over the last 15 years small caps significantly under-perform the big boys for the rest of the year. If 1996 continues to follow the norm, we suspect that profits from small caps in the months ahead may disappoint those hoping for above-average performance."
Richard Jeffrey at Charterhouse Tilney is still looking for progress. "In the short term there remains scope for equities to be boosted by signs of strengthening activity in the economy - so long as Wall Street manages to hold its ground.
"Further out, however, the environment for both gilts and equities is likely to become tougher."
Biggest company reporting this week is British Steel, with year's results today. Destocking and a slowdown in European industrial production has prompted many analysts to lower their expectations. …