The Investment Column: Carpetright looks decent value

There's no doubting Carpetright's success since Lord Harris's group came to the market four years ago. But the shares have underperformed the market by 34 per cent this year and investors may wonder whether they should have cashed in when Lord Harris sold a chunk of his holding in January.

But with the shares down 10p to 459p yesterday - compared to their 644p in June - the downside looks limited.

Yesterday's 16 per cent rise in interim profits to pounds 16m was below some forecasts, but news on current trading was more encouraging. Though same- store sales in the first half were up 4 per cent Lord Harris reckons Carpetright has achieved double-digit sales increases in the past seven weeks. That's against a UK carpet market that is down over 10 per cent.

The group claims it only needs 4 per cent comparable sales growth each year to achieve its goal of a 30 per cent share of the market by the year 2000. That will mean expanding the number of Carpetright stores from the current 226 to 300 and doubling the number of larger Carpet Depot outlets to 150.

Though sales gains may be hard, the shift towards higher-margin mid-price carpets is boosting margins. Carpetright is also pushing the Crossley carpet range, which comes with a free five-year guarantee. From a standing start in May, these now account for 12 per cent of total sales. Carpets by Harris, an in-house brand with a 10-year guarantee, will be launched soon.

On full year forecasts of pounds 41m the shares trade on a forward p/e of just 13 - almost no premium to rival Allied Carpets. Higher interest rates and the absence of windfalls means 1998 may not be the year to hold retail stocks, but Carpetright looks decent value.