Shares in GUS (LSE: GUS) soared this morning after its interim results showed that its Experian credit information business and Burberrys had shaken off some of their post September 11 troubles. However, a look at the track record of the company shows that investors may want to stand back and watch for the time being.
The GUS share price and its level of profits is only now recovering to the levels they achieved in 1995/96. It's taken a long time to get the business back on its feet again. To be honest, it is still a mix of businesses that fit awkwardly together, but considering how the group was built up, that isn't surprising. Argos and Burberry seem to be strange bedfellows with Experian chugging alongside them.
But the new management team do seem to recognise this. They are still hoping to float off part of Burberry by next June. The various price tags being mentioned still seem to be rather optimistic, despite its high profit margins. They have also done a good job in getting the business to current levels, but the question for investors is "where next?"
At 620p per share, the group is valued at just over 16 times earnings forecast for the year ending March 2002. Debt levels are manageable at £1.2b, a legacy of the Argos acquisition of 1998. But whenever I look at a business like this, I keep on coming back to the question, why will it outperform the market as a whole over the long-term? It's hard to make a solid argument for why it will, so why not plump for something like a plain vanilla index tracker instead? The shares will start to look attractive around the £5 level.
More: GUS discussion board
The writer has a hangover and is feeling a bit grumpy.
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