Four Cheap Retailers

A handful of cheap shopkeepers that may be worth a punt have been unearthed following a trawl around the retail sector.

There are few things more infuriating than trying to buy something in a busy shop. When a shop is brimming with people, you tend to get poor service, you are clamouring over other shoppers to see the merchandise, and worst of all, shop assistants are not always interested in offering you a good deal.

Amusingly, there are interesting parallels with investing in popular retailers where bargains can be few and far between. But that's not the case with out-of-favour shopkeepers. There you may find bargains galore, plus you have the added incentive of profiting if they return to favour.

Take United Carpets (LSE: UCG) which, together with some of the stock market's out-of-favour retailers, is listed in the table below. Its shares currently languish at 9p. This values the floorcovering specialist at around £7m, which for a business that had a turnover of £16m looks ostensibly cheap. Revenues for the last half-year were £7.7m that represented an improvement of 17% on the previous year. Additionally, the latest trading update in December showed that like-for-like sales grew 4.7%.

It is not surprising that some retailers, especially those involved in household goods, are in the doldrums given consumer concerns over the economy. Spending growth on household goods in the UK slowed from 0.8% to 0.3% towards the end of last year as Brits curbed spending in the face of rising unemployment. Consumer confidence has not been helped by higher utility bills and a dramatic rise in oil prices.

This may also explain why Floors 2 Go is rated at 7 times earnings, and valued at 0.4 times sales. Earlier this month, the laminate specialist said like-for-like sales were down, but profits may undershoot market expectations. Floors 2 Go has been hurt by the slowdown in discretionary consumer spending, which has resulted in a lower level of investment in makeovers and property improvements.

Some clothing retailers may be worth a visit, too. Jacques Vert said trading remains tough as it reported a 12% drop in annual sales to £133m. But like-for-like sales have grown in the first eleven weeks of the new year. Additionally, the clothing retailer has resolved a thorny problem over a pension deficit that it inherited when it acquitted William Baird. This should help release around £3m a year to invest in its brands that include Planet, Precis and Windsmoor.

But it pays to tread carefully when fishing for bargains because retailing is a cut-throat business. For instance, Alexon, which operates under the Bay, Kaliko and Ann Harvey banners, is also ostensibly cheap. However, a decline in like-for-like sales coupled with shrinking margins suggests that more work may need to be directed at cost control.

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