Investment Column: Fine Art split looks promising

Fine Art Developments' decision to de-merge its greetings card operation into the newly formed Creative Publishing in September has increased shareholder value a little, but both companies remain on huge discounts to their sectors.

Fine Art was hit by a profits warning last year due to problems in the Express Gifts division, and the poor sentiment appears to be lingering on. However, first half operating profits were pounds 1.3m ahead to pounds 3.1m and all three divisions - home shopping, educational supplies and charity catalogues - did well.

Overseas sales in the second half will be affected by strikes in France and Canada, as well as the strength of sterling. Nevertheless analysts have left full year forecasts unchanged. Though the company says it is looking for acquisitions, Fine Art may well find itself on the receiving end of a bid itself.

On full year forecasts of pounds 21.5m, the shares, which rose 6p to 169.5p yesterday, trade on a forward p/e of 10. It would make a good fit with a larger mail order group such as N Brown or Otto Versand, who could push the product through their larger databases.

At Creative Publishing, which is Europe's largest greetings company, the shares have withered since the demerger, but once again results looked promising. Operating profits, before demerger costs of pounds 7m, were 19 per cent higher at pounds 5.1m and the direct retail division, which designs, produces and distributes cards to retailers, is storming away.

As the lowest-cost producer with a strong market share and a client list that boasts companies such as Boots and Marks & Spencer, prospects look encouraging. On increased forecasts of pounds 16m, the shares - up 1.5p to 145p - are on a lowly rating of 11 and look attractive.