Investment: Merger or not, Asda looks in good shape
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Your support makes all the difference.ARCHIE NORMAN came up with a canny ploy yesterday when the Asda chairman ordered any analyst who wanted to ask a question about Asda and mergers to don an England World Cup football wig. The stunt limited the City suits to a single question on the subject, but it also meant the company again failed to address an issue which has cast a cloud over its share price.
Notwithstanding yesterday's 8.5p jump to 203p, Asda shares have drifted this year and a key reason is that the company will not communicate with the City on its plans. Some analysts say that clearing up the merger issue, one way or another, could add 10-20 per cent to Asda's share price.
This is a shame, given that yesterday's figures show that Asda is still firing on all cylinders and management have plenty of ideas on how to take the business forward. Underlying profits, which rose 14.4 per cent to pounds 404.9m, were ahead of expectations. Asda's like-for-like sales growth of 8.2 per cent is still the best in the sector. And the George clothing brand is going like a train with sales up a staggering 30 per cent in a clothing market up just 5 per cent.
The City's query with Asda is whether it will run out of steam in two or three years' time without more retail space. Asda has already talked about buying Welcome Break and merging with Safeway and Kingfisher - and those are just three the market knows about. But if a suitable deal cannot be found it is encouraging to see management indulging in some research and development work on home shopping and television channels as well as drive-through restaurants.
On Morgan Stanley's forecasts of pounds 445m this year Asda shares trade on a forward rating of 18. Still a solid hold in a defensive sector.
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