Weekly comment: Kiss you, Kate

Kiss you, Kate

It is hard to work up much enthusiasm for High Street retailers but one cannot help feeling the greatest admiration for Kate Swann, the woman who pulled WH Smith out of a hole.

Memories dim, and most investors will have forgotten that this purveyor of newspapers, books and stationary was in such a mess five years ago that it had to be handed to a woman because no man worth his salt wanted to be associated with its failure.

Instead of demonstrating that women can’t run a business, as she was supposed to do, Swann has transformed the ugly ducking, not quite into a graceful cygnet (miracles take a little longer) but at least into a tasty goose.

Her major achievement has been to take Smith back to its roots as a seller of reading matter for travellers and to cut back on the struggling High Street side. Figures this week show that the travel division posted profits up 17% in the year to August 31 despite a 7% fall in air passengers. Contrast this with the High Street, where total sales fell 1% and like-for-like sales tumbled 5%.

Smith’s shares had fallen over several weeks ahead of the figures and those who bought while the opportunity was there were rewarded with a 20.5p jump after the results, not to mention a rise in the dividend. Any fall back in the share price would present another opportunity to get in, though I would not be inclined to chase them higher at this stage.

The High Street will continue to be a drag on the group; Swann could fly away--rumours that she will replace Sir Stuart Rose at Marks & Spencer persist; and the overseas arm is eyeing expansion in India, where six outlets are to be opened at Delhi airport--overseas expansion has brought problems for UK retailers in the past.

This unsporting life

Rumour mongers have scored fewer more spectacular coups than the derailing, albeit temporary, of the proposed rights issue by retailer JJB Sports. Although the cash call goes ahead after a short delay, shareholders should concentrate on the hard facts that suggest they should pass this one by.

There are several lessons in this sorry affair, not only for private investors but also for fund managers and company directors.

First and foremost, you cannot believe all the rumours that you hear. The stock market thrives on rumours and speculation and more often than not they are right. You cannot stamp out the leaking of genuine information when so much money is to be made from insider trading, however hard the regulatory authorities may try.

Often the motives of those who peddle false rumours are obvious: there is financial gain. It is hard to see why anyone would want to disrupt the JJB cash call, as it will go ahead and succeed anyway. JJB shares did fall 1.75p to 32.75p last Friday as the rights issue was delayed but this was hardly a great kill.

Secondly, one must compliment John Clare, the senior non-executive at JJB, for taking prompt action. He immediately called an emergency board meeting, delayed the rights issue until matters were sorted and demanded a full explanation from the individuals targeted by the rumour, including the production of bank details.

However, the matter has still not been entirely cleared up. The rumours suggested that JJB’s former chief executive, Dave Whelan, had provided JJB’s current executive chairman Sir David Jones with £1.5 million to pay off a personal loan from Mike Ashley, founder of JJB’s deadly rival Sports Direct.

Since Whelan had bought a chain of health clubs from JJB, this would have meant that one embarrassing loan had been replaced with another. Whelan, his daughter who was rumoured to have paid the money to Jones, JJB and Jones himself all categorically deny the allegation and there is no reason to doubt the denial.

Jones is an undeserving victim of this smear. He has a reputation for integrity and shareholders in Next have every reason to be grateful to him for his successful tenure there.

Nonetheless, Jones should have said immediately where he did get the £1.5 million from. This may have been a personal matter but it affected his public position at JJB and the disclosure would have ended the damaging rumours.

In the end, though, shareholders should not be distracted by these side issues in deciding whether to take up their rights. They should ask themselves whether they want to throw money at JJB.

In my view they should not. JJB shares collapsed from 300p in mid-2007 to penny stock status at the end of 2008. The subsequent recovery easily prices in current prospects. Its most recent figures show losses almost trebling to £42 million in the six months to the end of July. It will be next year before the restructured group fully rebuilds its stocks, which does not augur well for the key Christmas period.

Gordon’s the gaffer

Can Gordon Brown get nothing right? When Tony Blair was prime minister he was faced with a potentially embarrassing inquiry, so he made sure he got a whitewash. Indeed, so blatant was the whitewash in the inquiry into the Iraq War that the conclusions were utterly at variance with the report’s own summary.

Still, the inquiry did the trick and Blair was exonerated for a disaster that could have been laid squarely on his shoulders.

Contrast that with the inquiry into MPs’ expenses, a scandal in which Brown was no more to blame than hundreds of other MPs. Perhaps the thought that little or no mud could stick to him was why he was keen on an inquiry.

If you want a whitewash, you do not hand the paint brush to a 79-year-old retired civil servant with nothing to lose.

No wonder Blair stuck it out as long as he could in the hope of depriving Brown the top job. He can’t even decide what colour to whitewash the churchyard ceiling.

Taxing question

A friend has bought a motorcycle and wishes to buy new bodywork for it. He has found a deal in China that is decently priced even when postage and packing is added on. He naturally fears, though, that when the package arrives it will have a slab of import tax on top.

So he rang HM Revenue & Customs to find out. The number he rang provided him with another number, which provided him with another number … and so on until he was directed back to the first number he had rung.

I have tried go online on his behalf and actually found a page on the HRMC website that claims it will calculate the tax. However, when you put in all the details it tells you only whether tax is due, not how much. I used the email facility but have had no reply. Does anyone know?