Bottom Line: Retailers start a fashion in modest optimism

THE retail sector had two reasons to celebrate yesterday. Austin Reed proposed the enfranchisement of its 'A' ordinary non-voting shares and both it and Liberty made cautiously optimistic noises about trading.

Reed's non-voting shares bounced up 25p to 132p and Liberty's were 48p higher at 358p. The excitement spilled over into GUS, where the non-voting 'A' shares closed up 21p at 1,675p and the ordinary shares up 57p at 2,840p. Enfranchisement hopes were confined to retailers, with shares in the Savoy, Whitbread, Youngs and other companies with two-tiered share structures largely unmoved.

Reed's decision to modernise its equity structure, which presently gives 9.5 per cent of shares 100 per cent of votes, came from within and not from shareholder pressure. The new chief executive, Colin Evans, said that if the company was to grow and capitalise on its brands it must be able to raise money by issuing shares. Reed believes its management and distribution can handle a bigger business and says there are opportunities here and abroad.

Compensation to persuade ordinary shareholders to reduce their voting power to 17.3 per cent is a one-for-one scrip issue. Some of the larger institutional shareholders such as Prudential have a foot in both camps through ownership of sizeable chunks of both classes of shares. Hartmarx Corporation of the US, which owns 13.4 per cent of the voting shares, has yet to be won over.

Liberty's move to split the role of chairman and chief executive and bring in fresh blood shows that it, too, is susceptible Eto modern trends. Brian Myerson, the South African financier whoTHER write error has already had one unsuccessful attempt to enfranchise all Liberty shareholders, certainly hopes so. GUS as always remains an enigma.

The modest upturn of the past few months - Austin Reed's spring season is 8 per cent up on last year and Liberty believes demand this year will be better than last - is not evidence of a boom. But there are signs that those retailers that have paid close attention to stocks and cost control and have strong balance sheets may be about to benefit as consumer confidence re- emerges.

On that basis Austin Reed and Liberty have more going for them than Alexon. Alexon's new management will have to impose financial discipline and repair the balance sheet as well as make the brands more profitable.

But share prices are looking toppy at both the heritage retailers. Assuming pre-tax profits of pounds 2m at Reed this year, the prospective p/e ratio on the enlarged equity is a hefty 29. It is much the same at Liberty, assuming around 30 per cent earnings growth this year.