Investment Column: Brown & Jackson settles down

BROWN & Jackson's history has been such a disaster that investors must have wondered whether fortunes of the Poundstretcher discount stores group would ever take a turn for the good. But in the three years since Pepkor, the South African group, acquired a dominant stake it has started to look more stable.

With Pepkor now holding 70 per cent and one institution another 10 per cent, the stock is tightly held and the shares have quadrupled in the last year. They edged 3p higher to 47p yesterday on a sharp jump in half- year profits from pounds 5.7m to pounds 13.2m. The company is now forecast to make its first full-year profit since 1992.

Much of the credit here must go to Brown & Jackson's South African management team, whose shrewd approach is starting to pay off. At Poundstretcher, the main discount chain, like-for-like sales fell by 3.2 per cent, though this was expected after changes to the sales mix, The average selling price per item increased as did the average spend per customer, though management still plans to keep Poundstretcher at the "value" end of the market.

Poundstretcher's profits increased by 43.5 per cent in the period and the company's two acquisitions of last year, WEW and Your More Store, are only starting to contribute. The two discount chains made pounds 5m in the three months in which they were part of the group.

No more acquisitions are expected, so the immediate future will see management continue to work at improving the performance of its existing portfolio. Peel Hunt is now forecasting full-year profits of pounds 5m which puts the shares on a forward rating of 14. If management continues to deliver earnings growth that could look good value. But the company's volatile record urges caution. After a good run the shares are a hold.