BULL POINTS:
■ Turnaround is gathering pace
■ Dividends to resume
■ Backed by cash and property assets
BEAR POINTS:
■ Risk of consumer spending slowdown
■ Acquisition risk
In the internet age, television shopping might seem old hat, but it remains a lucrative market in which Ideal Shopping Direct has a firm foothold. And, with its management team now 18 months into a turnaround plan, Ideal is showing decent sales growth and a return to profits, and may resume dividend payments this year.
Ideal's bosses, led by chief executive Mike Hancox, previously chief operating officer of Littlewoods Direct, joined in late 2008 and early 2009 after a series of profit warnings and the failure of an bid approach for the company left its share price languishing. They have now got a grip on the finances of the business, its supply chain and customer services, and enhanced its internet offering to plug into this rapidly growing market.
This has resulted in a strong rebound in trading, enhanced by the acquisition of gardening retailer Lead The Good Life (LTGL). A trading update in June showed that total sales for the 21 weeks to 30 May were 18 per cent ahead of last year. Stripping out LTGL's contribution, sales were still ahead by 11 per cent.
| IC TIP RATING | |
|---|---|
| Tip Style | Speculative |
| Risk Rating | High |
| Timescale | Long term |
Ideal Shopping has been broadcasting for 10 years and operates several channels, including its flagship Ideal World, which sells a wide range of products; plus Ideal Extra, Ideal & More and Create & Craft, which is aimed at the highly fragmented £2bn-a-year craft and hobby market. Its main UK rival is QVC, whose sales are around £365m, indicating that a sizeable market is there to be tapped into. In the craft market, Ideal is also using its supply chain to become a wholesaler of craft products and is believed to be in talks regarding overseas supply contracts in the US, Australia and Europe.
| ORD PRICE: | 165p | MARKET VALUE: | £55.5m | |
| TOUCH: | 162-165p | 12-MONTH HIGH/LOW: | 172p | 72p |
| DIVIDEND YIELD: | 2.39% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 39p | NET CASH: | £13.4m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 97 | 5.8 | 12.6 | 5.5 |
| 2008 | 95 | -13.2 | -38.9 | 1.8 |
| 2009 | 103 | 1.1 | 7.1 | 0.0 |
| 2010* | 114 | 5.0 | 12.3 | 2.5 |
| 2011* | 125 | 7.5 | 15.5 | 3.9 |
| % change | +10 | +50 | +26 | +56 |
Normal market size: 1,500 Market makers: 4 Beta: 0.5 *Singer Capital Markets estimates | ||||
The company's core customers are women aged between 35 and 64 from the C2 and D socioeconomic groups, although its expansion into online selling may change this demographic profile. Online revenues currently account for around 20 per cent of the total, but management hopes to double this by the end of 2011. Obviously, there is a risk that Ideal's sales would be hit if the UK lurches back into recession, but diversification of its selling platforms and customer base will hopefully mitigate this risk.
Ideal's £13m cash, plus freehold properties of up to £7m against which it could borrow, means it has ample scope for acquisitions. Lead The Good Life, set up by Ideal's founders, Paul Wright and Val Kaye, was bought in December for £5m in cash. Further acquisitions could add to revenue and profits but also bring the risks associated with any poorly judged acquisition.
