Shares digital

Amid the welter of trading updates from retail companies some trends shout out loud and clear, the main one being that those looking to make money from the sector should tap into the increasing popularity of home shopping and the internet. Both the home shopping specialists N Brown (BWNG) and Ideal Shopping (IDS) were able to report much stronger trading. N Brown reported growth of 48% in internet sales, which now account for 28% of total group turnover. With its niche emphasis upon the fuller figure the group faces less competition than most, and analysts at Numis reiterated a price target of 365p – some 49% above the current 244.25p price.

TV shopping specialists Ideal Shopping enjoyed strong growth, up 27% helped by an increase of 26% in new customers. Brokers are optimistic about the immediate prospects forecasting 2008 profits of £9 million, with an EPS of 21p, placing the shares at 150p on a PE of 7.1. Analysts at Kaupthing have a target price of 290p which is almost double current levels.

Although both Game Group (GMG) and Debenhams (DEB) exceeded expectations the immediate prospects for the companies are less certain. Game Group indicated that profits would be ‘not less than £73 million’, against £29.5 million the year before, following the success of Sony’s PS3 and Nintendo Wii but margins may be under pressure this year. Investors would be unwise to buy the shares until the outlook becomes clearer.

Debenhams marginally exceeded brokers’ expectations but many are concerned about the outlook for clothing sales. The house broker Merrill Lynch has again emphasised the group’s ‘operational and financial gearing’, a polite way of indicating its vulnerability to any downturn. That is why the shares should be avoided.

Shares says: Internet and home shopping is where the strength will be in the retail sector.

BUY N Brown, Ideal Shopping

AVOID Game group, Debenhams

by: John Marshall

The writer holds shares in Ideal Shopping