The Investment Column: Northern Foods should be kept off the menu for now

Burberry; CoffeeHeaven Intl

Our view: Avoid

Share price: 91p (+5p)

In the next five or so weeks, Northern Foods will sell 26 million Christmas puddings. Which means a lot is riding on how well the food group performs over the festive gorging season. Investors are all too aware of the company's propensity for welcoming in the new year with a profit warning, so yesterday they were busy scouring its interim results for signs of something rotten.

The alarm bells are already ringing over the firm's chances of getting £200m proceeds from a disposal programme that will see it shed 40 per cent of its business by a self-imposed target of next May. Profits from the businesses to be sold collapsed to almost nothing - but Pat O'Driscoll, the company's head chef, insisted this was only what it had flagged six months ago.

There were also concerns over its Fox's biscuit division, one of the star brands it is keeping along with Goodfellas pizza. Although the chocolate biscuit brand has regained the percentage point of market share it lost earlier in the year, it is having to invest a lot to secure extra sales.

Following the divestments, Northern will comprise three divisions: chilled, bakery and frozen, making pizzas, ready meals, biscuits, sandwiches, salads and those figgy puddings. Yesterday's interim numbers suggested its chilled business was on the road to recovery, with a 9 per cent rise in sales and a 2 percentage-point gain in margins to 3.8 per cent.

The 38 per cent fall in interim profits before tax to £16m showed the rest of the company has some way to go before it matches the progress shown by that one division. Northern must show it has survived Christmas and that it can get the sorts of proceeds it has promised from its asset sales before it merits another look. For now, the shares remain off this column's Christmas wish list.

Burberry

Our view: Buy

Share price: 588p (+31.75p)

For a British luxury goods group, Burberry sure is fond of installing American bosses. Its latest, Angela Ahrendts, is another Yank and unveiling yesterday's interim results she made it clear where her heart lies by putting the US at the centre of her expansion plans.

The fashion house is keen to become a global player, which is why it is stepping up the pace of its store rollout. It expects to open 14 or so stores a year, up from the six it has been opening up to now. As well as the US, it sees potential across the "entire" Asia region, including China and Taiwan. Its global retail footprint will increase by 13 per cent this year alone.

Ms Ahrendts was at Liz Claiborne before, so has a strong retailing background. She is anxious for Burberry to stop thinking of itself as a wholesaler, selling clothing ranges to upmarket department stores, and to start thinking as a retailer. She wants more collections to hit the stores more frequently and for stock to get replenished as it sells through.

The group is also moving into the world of accessories, selling ever more expensive handbags and a proper shoe collection for the first time. It sees these sorts of high-margin goods as the key to unlocking the heady ratings enjoyed by the luxury doyennes LVMH and Hermes.

In the first six months of its financial year, the proportion of revenues the group gets from its retail outlets increased to 43 per cent from 35 per cent a year earlier, a shift tipped to continue. The emphasis on retail does come at a cost, but the company hopes higher margins from its company-owned outlets will offset higher operating expenses.

In the six months to 30 September, pre-tax profits were £73.4m, down from £78.1m. But there is a real momentum behind all of its three profit streams: retail, wholesale and licensing. This column has long been a fan of the shares and now is no time to lose faith. Buy.

CoffeeHeaven Intl

Our view: Buy

Share price: 35.5p (+1.75p)

The chances of anyone in London getting their early morning latte from CoffeeHeaven are slim because the group only operates coffee shops in eastern Europe. Its biggest market is Poland, where it operates 39 outlets and where the growth in coffees to go is rising faster than the froth of one of its cappuccinos. It also has operations in Latvia, the Czech Republic and Bulgaria, taking its number of outlets to 59.

But that doesn't meet shareholders should steer clear. A trading update yesterday confirmed current trading is ahead of market expectations. First-half revenue is up by 61 per cent and the group expects to make a pre-tax profit of £400,000.

With no debt on the books, the company has been able to expand rapidly by using free cash flow. But such growth comes at a price. The shares are very expensive: at yesterday's close of 35.5p, they trade on 55 times expected 2008 earnings, according to forecasts by Seymour Pierce, the broker.

Investors should be wary of firms whose shares are priced to perfection, and if CoffeeHeaven makes any mistakes the shares are likely to go through the grinder. But its track record is excellent and brave investors should consider tucking some away for the long term.