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VALUE INVESTING
By
T J Hughes (LSE: HGH) (www.tjhughes.co.uk) is a tinpot and a retailer to boot. So it's very unlikely I would ever invest in it. Nevertheless the company has some potentially attractive value features. First though a few general words, particularly in view of disasters like Independent Insurance and Railtrack about which I have written previously here. The shares about which I sometimes write in this column are not tips. A tip by my definition is a share that the writer advocates positively that readers purchase. But I am stating that readers should never buy shares just because I mention them. Except in very rare cases, I do not buy them myself. And if I wouldn't buy a share myself, I find it somewhat questionable to suggest that others do so. The purpose then of writing about specific shares here is simply to illustrate what might interest some value readers to look further. So please be clear, any write-up here does not mean that I endorse the share at all unless I say so categorically. In fact I may actually dislike it intensely, despite the fact that it exhibits some value characteristics. Here are the usual fundies: TJ is a discount retailer of various goods. The shares have collapsed in 2001 from a peak of around 380p last year to the present price following adverse trading conditions resulting in a fall in eps from 16.7p in the year to 31/01/00 down to 10.5p for 31/01/01. Unfortunately for those who took it up, a rights issue of 1 for 8 raised 310p per new share back in December 2000. A bad sign is that in the interim figures to 31/01/01, it was reported that like-for-like sales had declined 0.6% though total turnover had risen 12.6%. The directorspeak states that the results were affected by a stock overvaluation problem and the costs of fighting off a hostile bid that occurred in May 2001. A profits warning was given in July 2001 when it was stated that a loss was likely to be incurred in the first half. They were as good as their word and a loss of 2.9p per share was duly reported a few days ago for that first half to 31/07/01 compared with eps of 6.6p for the same period last year. The interim dividend though was maintained at 1.48p The three broker forecasts of eps for the year to 31/01/02, published very recently and after those interim results were known, average out at 10.9p with the lowest at 10.4p. The same brokers for 31/3/03 average at 15p with the lowest at 12.3p, a reasonable increase. The company had net cash at the last full year results to 31/01/01 as a result of the money raised from the rights issue. However by the interim of 31/07/01 this seems to have been spent plus some more because this turned into gearing of 30% as they reported several new store openings in that first half. By Christmas 2001, a critical season in this trade, the selling space will have increased by 29% over last year. That does not mean of course that eps will increase by that amount, don't be misled. However I do not want to dwell too much on side issues like what the company actually does, that disturbs the aesthetics of value investing. Far more important is to let the numbers run over you like a warm shower and see if this stimulates you where it matters, allowing yourself to sense briefly whether these discount stores have any short term play in them. Bear in mind that forecasts are always questionable, they must not be given too much credence and that retailing is frequently a pretty high risk area, although TJ is not really in the ultra high risk specialist retail area like fashions for example. I have never actually been in a TJ's store but beware as that can be counterproductive. Investing using the lethal buy-what-you-know approach has been the downfall of many a mugpunter. And no I am not suggesting anyone buys this share, make up your own minds.