Derek Pain: Booker's books are full of eastern promise

No Pain, No Gain

With independent retailers under intense pressure it is on the surface surprising that Booker, which supplies many of them from its 173 cash and carry outlets and through its distribution system, is trading so well.

Chief executive Charles Wilson, a former Marks & Spencer director, has produced another upbeat trading statement covering the 16 weeks to the start of this year.

Like-for-like sales advanced 6.7 per cent and even tobacco sales, helped by smokers buying more in this country rather than abroad, recorded a startling 7.9 per cent increase.

Booker's main customers are, in many quarters, regarded as dying breeds. Corner shops and village stores are said to be mere fodder for the superstores as they continue their remorseless advance. Tenanted pubs, another major Booker revenue source, are struggling in the worst trading environment experienced for decades as cut-price booze offers from multiple pub operators and those supermarkets pile on the agony.

Independent caterers, another main area, are also threatened by high-street chains but many are probably in a better position to prosper than other Booker customers.

When I was actively involved in a retail business some years ago I often visited a Booker's cash and carry. It was a bleak, uninviting warehouse where any suggestions of customer comforts were obliterated – presumably to keep costs down although whether such an attitude led to lower prices is debatable.

I seem to recall that long before the Wilson reign commenced there were worries that the-then quoted Booker was in deep financial trouble. It later surrendered its quote, merging with the Iceland retail chain.

*Booker returned to the stock market in 2007 via a reverse takeover of Blueheath, a wholesaling group that had, not too successfully, pioneered food distribution through the internet.

Mr Wilson, who has revamped the warehouse estate, recalls just how much Booker was in need of urgent attention when he arrived nearly five years ago. Back then he faced net debts of £361m with sales "dropping at a rate of 6 per cent per annum, a slump in profits and supplier and customer confidence in the business was very low".

Today debt has nearly disappeared – a mere £4m at the interim stage – and profits this year could hit £53m, up from £47.2m and £36.2m a year earlier. The big freeze could have hit sales for a while but my suspicion is that the group will soon make good any sales discomfort.

Although the shares have weakened a little lately, they are still on a fairly fancy rating. The no pain, no gain portfolio descended on them two years ago at 24p. They are now around 45p after almost brushing 50p.

At one time it seemed that Booker could become a casualty of the controversial Icelandic investment invasion. It was one of the companies captured as the tiny island's upstart banks launched a shopping blitz for a host of retail names. But the Blueheath deal allowed it to escape the Icelandic clutches even before the underlying weakness of their shopping spree became apparent.

Mr Wilson was Sir Stuart Rose's right-hand man as he struggled to revitalise Marks & Spencer following retail entrepreneur Sir Philip Green's abortive bid. His name cropped up when Sir Stuart was seeking a new chief executive, before he poached Marc Bolland from the WM Morrison supermarket chain. Before this week's appointment of Dalton Philips there were suggestions that Mr Wilson could fill the vacant Morrison's chair. But with more than 8 per cent of Booker's capital he is probably content to remain in his present job.

* Quite clearly he sees Booker stretching beyond its domestic market. Some of its Indian shopkeeper customers helped persuade the group to venture into India. So far it has just one warehouse – in Mumbai. The initial response has been encouraging. Although the group acknowledges that its Indian excursion could encounter setbacks it says it is becoming increasingly confident it will be able to successfully supply the stores, street traders, caterers and suppliers of India.

Should Booker strike it rich in India it could be tempted to venture into other Asian lands. Its operating style could prove popular in the Far East.

Although the shares now look a little heady, the buy and hold investor may well consider them worth picking up.