Booker (Bok – main market)
Napoleon is widely believed to have described Britain as “a nation of shopkeepers.” The remark was meant to be disparaging but, for companies like Booker, it is quite the reverse. Booker is the UK’s largest cash-and-carry business, with more than 400,000 customers.
The company is best known as a supplier to corner shops – and just over £2 billion of sales came from independent retailers in the year to 27 March. But around £900 million came from other customers, ranging from pubs to prisons and from fast-food outlets to schools.
Booker has had a troubled history but the current management are determined to turn the company round. Chief executive Charles Wilson has an excellent pedigree. A director of the group back in 1998, he was a protégé of Sir Stuart Rose, then at the helm of the company.
He followed Rose to Arcadia and then to M&S before he was appointed to his current position at Booker in 2005. He quickly assembled a new team – finance director, commercial director and operations director –to make Booker a better business.
A trading update released last Thursday for the 12 weeks to 11 September, show their efforts are yielding results. Despite the tough economic environment, sales rose 7.6 per cent by comparison with the same period last year and net debt has come down from £29 million to just £4 million.
Brokers predict profits for the year to March 2010 will rise 15 per cent to around £52 million while the dividend should increase from 0.87p to 0.97p.
Wilson is focused on offering customers better service, better choice and cheaper prices so stores are being upgraded, assistants are being trained, there are more products on offer and costs are under constant review.
Booker is investing in its internet site too, where sales have risen from £15 million when Wilson joined to £300 million today.
Data released last week – on the same day as Booker’s trading update ironically – showed UK retail sales barely grew over the summer. But corner shops are proving resilient and many catering outlets are turning to Booker instead of smaller, independent wholesalers because it is cheaper and provides a more flexible service.
The company has also opened a small operation in India , which is low-cost but could deliver strong growth over the next few years.
Midas verdict: Wilson is a strong leader and he has assembled a capable team to deliver increased sales and profits. With 8 per cent of the shares, his interests are clearly aligned with investors. Booker shares are 41p. Buy.
Quarto (QRT – main market)
Book publishing can be a tough business. First, publishers need to find the next best-seller. Even if they are lucky enough to spot the JK Rowlings or Dan Browns of this world, it is increasingly hard to make money from these popular authors, as supermarkets and online retailers pressurise suppliers to offer books at cut-price rates.
Quarto is different. The company publishes an enormous range of books, on subjects as diverse as tattoos, tractors and cooking for children. It publishes erotic books under the Quiver brand and books about golf, under the Apple Press imprint. Each year, the group publishes around 600 new titles and its backlist – books that it has published in the past but continues to sell – numbers more than 9000 works.
All these different titles have two things in common – they focus on special interests and they are beautifully photographed. Some are extremely expensive, more than £100, but most are sold in the shops for between £10 and £25. They are frequently bought for or by enthusiasts with a passion for a particular hobby.
This makes Quarto less susceptible to consumer whimsy than more conventional publishers – its books tend to be viewed as must-have items or ideal gifts for birthdays and Christmas.
The company was set up more than 30 years ago by Laurence Orbach. Aged 67, he remains at the helm of the business and is as passionate about it and energised by it as he was back in the mid-1970s.
Around 60 per cent of Quarto’s sales come from America and Orbach admits trading has been difficult there this year. UK sales have been more robust however and the company believes it can weather the economic storm.
Analysts forecast a fall in profits for 2009 from £7.7 million to £6.9 million but they believe the dividend will be maintained at nearly 7.2p. Given that Quarto shares are trading at 103p, this means the stock is yielding almost 7 per cent, which is particularly juicy when saving rates are so low.
Midas verdict: Quarto is a niche business, providing beautiful products for customers who know what they want. The company is not immune to recession but it is more defensive than many and its shares are undervalued. Buy.
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