After a slow morning, London followed Wall Street down this afternoon. Analysts are once again poised to pore over the next set of US economic figures. Tomorrow, it is the turn of one of the most popular indicators, the non-farm payrolls. That will tell us the total number of people employed in the US. Farm employees are not included as their numbers tend to vary according to the time of year. Or perhaps they just don't like rednecks? Once that indicator is out of the way then analysts can start to worry about the next one.
Legal & General(LSE: LGEN) crept up 17.5p to 192.25p in late afternoon, as rumours spread around the Square Mile that Lloyds TSB(LSE: LLOY) was about to launch an "imminent" takeover. Is there a company in the UK financial sector that Lloyds hasn't been tipped to buy yet? Legal & General were due to make an announcement at 5:30pm but we were still waiting at the time we went to press.
Misys(LSE: MSY) was another FTSE 100 stock performing well. It has benefited from impressive results elsewhere in the IT sector this week and rose 19.5p to 561.5p. Admiral(LSE: ADC) was another beneficiary, rising 52.5p to 817.5p. Among the smaller IT stocks, Druid(LSE: DRD) didn't want to be left out, and chipped in with a rise of 142.5p to 1327.5p.
Elsewhere in the IT world, ARM Holdings(LSE: ARM) enjoyed a healthy gain of 30p to 928.5p as Nintendo announced it would be using ARM's RISC chip in the next generation of Game Boys, to be known as Game Boy Advance, due to launched at the back end of 2000.
Once again the ongoing interest rate worries led to drops in the financial sector (with the notable exception of Legal & General) and the highly rated telecom companies. The biggest loser amongst the financials was Bank of Scotland(LSE: BSCT) with a fall of 41.5p of 733.5p. The venerable Scottish institution is struggling to regain the lofty heights of 900p plus it reached earlier this year. Lloyds TSB, the likely bidding suspect for Legal & General, fell 20p to 823.5p.
Colt Telecom(LSE: CTM) continues to give investors a roller coaster ride. Today was one of the down days with the stock falling 74p to 1307p. Colt's big cousin Vodafone AirTouch(LSE: VOD) kept it company by dropping 51p to 1203p. British Telecom(LSE: BT.A) fell 18p to 947p as it announced its new domestic call rates, which have been guided by OFTEL recommendations. Although line rentals are to increase, most customers will effectively receive an extra three hours of free local weekend calls each quarter. A small reduction in surfing costs, therefore.
Senior Engineering(LSE: SNR) produced disappointing interim results today. Full year forecasts were cut by some 15% by its house brokers and the share price dropped 19p to 116p. The company is looking for an acquisition and thinks it can fund a purchase of up to £100m. It is also looking to dispose of its troubled German Air Systems subsidiary.
The oddly-named Yule Catto(LSE: YULC), the UK's sixth largest chemical group, reported broadly flat interim figures this morning. The company described the current year as one of consolidation, but over the longer term saw opportunities due to the recent wave of mergers and acquisitions within the sector. Nevertheless, their share price dropped 20p to 335p.
Baker Street, London -- Every so often, a company releases a piece of news which simply stands up and shouts "HAVE A LOOK AT ME!" I'm going to oblige by taking my first serious look at Matalan (LSE: MTN). Yesterday, the company released interim results for the 6 months to end of June.
But first, a little about the company.
It's a retailer! Do I not like retailers, having been burnt by Marks & Spencer(LSE: MKS), the biggest and previously the best retailer in the country. If they can't get it right, surely there's no hope for others, is there?
A quote from Warren Buffett, blatantly stolen from this excellent post by WainscottBoy, sums up the difficulty retailers constantly face.
"Retailing is a tough business. During my investment career, I have watched a large number of retailers enjoy terrific growth and superb returns on equity for a period, and then suddenly nosedive, often all the way to bankruptcy. This shooting star performance is far more common in retailing than it is in manufacturing or service businesses. In part, this is because a retailer must stay smart day after day. Your competitor is always copying and then topping whatever you do. Shoppers are meanwhile beckoned in every conceivable way to try a stream of new merchants. In retailing, to coast is to fail."
Matalan claim to be the UK's largest dedicated out of town clothing and homewares retailer, providing outstanding value for money. They offer a good proportion of national and international brands alongside their quality own label products. They have an 'open to all' membership concept, with 3.6 million active members, making it one of the largest shopping databases in the country.
So, what's so special about Matalan? You've probably not really even heard of the company, or seen one of its stores. There are only 92 of them across the country, with the only London store being situated in far from trendy Cricklewood. I've cycled past it a couple of times, but that's about it as far as personal experience is concerned. As for the shop front, it looks nothing special to me.
US giant Wal-Mart(NYSE: WMT) is comfortably the world' s biggest retailer, with 1998 sales of US$123 billion. Wow. Their domestic success has come about because they are the low cost buyer and seller of branded goods. They build huge edge of town stores, which helps keep costs to a minimum, then fill them to the rafters with fast selling goods. Profit margins are low but sales are high. Add to that excellent customer service, and you're looking at a business model which is difficult to compete with. The Wal-Mart success story continues today, with the company announcing year on year August sales growth of 27%. That's simply amazing for a company of that size.
Matalan appears to be following a similar business model. At this stage, one wonders why no-one else has succeeded in replicating the Wal-Mart model, given its success in the US. Costco have tried but apparently without a huge amount of success, whilst wholesalers such as Macro fill the niche 'corner store' market. Matalan is clearly talking aim at the mass market, and so far looks to be doing an excellent job of it.
A couple of things REALLY JUMPED OUT AND GRABBED MY ATTENTION from yesterday's results. Whilst the interim profit growth of 169% is clearly very impressive, admittedly from a relatively low base, that wasn't the thing that got me drooling. It was the like-for-like sales growth. When assessing any retailer, be it a shop or a restaurant, this is by far the most important variable. Sure, the roll-out of new stores boosts sales growth, but there eventually comes a saturation point, whereupon future sales growth will be determined solely on same store sales growth. Like-for-like sales growth also gives you an indication of whether the concept really is 'the real thing', and whether the company has a sustainable long-term business model.
Matalan's like for like sales growth for the first 6 months of the year was a very impressive 15.4%. After reading that I was drooling, but things really got out of hand when I found out that like-for-like sales growth for the 8 weeks to end of August was 25%!
25% LIKE FOR LIKE SALES GROWTH!
That immediately says that Matalan are doing something right, and in a big way. You can just imagine those shopping baskets over-flowing as customers take advantage of the cheap branded products. And you can also imagine the word of mouth marketing campaign going on in Britain's high streets. I can almost hear it from here.
But, just to put a dampener on things, it is worth revisiting Warren Buffett's quote above before getting too carried away. And, former growth stock darling JJB Sports(LSE: JJB) once had extremely strong like for like sales growth. In fact, at the end of June 1997, they triumphantly announced that for the 22 weeks previous, like-for-like sales growth was 18%. The shares then stood at 516p, hit a peak of 819p in 1998, and today stand at 350p. In June 1999, just two years later, they announced a like-for-like sales decrease for the 21 weeks previous of 14%. Ouch! Is branded sporting goods retailing a sustainable long-term concept? I have my doubts.
After substantial earnings upgrades following yesterday's impressive numbers, Matalan trade at a forecast forward price to earnings ratio (P/E) of about 29. For a company growing so rapidly, this is far from out of kilter with the rest of the market. As for the threat of Wal-Mart, who've just completed the take-over of Asda, the Matalan chief executive said the US giant could not match their own ranges or prices. Fighting words them are, but at the moment they are backed up by the numbers.
Members of the ancient Hungarian rock band Omega appear to be capitalists at heart. They want to turn their fans into shareholders by getting them to exchange their concert tickets for share certificates, after which they are planning a stock offering. We've seen David Bowie issue his 'Bowie bonds', secured on his royalties, but this is a step further. Will UK bands such as Oasis follow suit? Well, a clothing retailer has beaten them to the name and they appear to be demerging anyway. How about The Prodigy plc who would, undoubtedly, have the scariest board of directors ever? Would you buy shares in your favourite group? Tell us on the Daily Fool message board.
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