Investment Column: Goldsmiths extends its chain

On the face of it, Jurek Piasecki, head of jewellery retailer Goldsmiths, had little reason to smile yesterday. He revealed that the company had slipped into the red in the six months to August, with losses of just over pounds 300,000. The group's share price closed 9p down at 331.5p.

It all seems a far cry from last year's rosy sentiment, when Goldsmiths unveiled its first profits since flotation in 1990 and said it wanted to bid for the UK jewellery businesses of Signet, the former Ratners group. But although first-half figures are undeniably grim, the true picture is not all bad.

Following its disappointment with the Signet deal, Mr Piasecki decided that if Goldsmiths couldn't grow by acquisition, it would have to grow organically. In January, he placed 1.1 million shares to raise the necessary cash. Rival Signet currently has a far larger retail network than Goldsmiths, but Mr Piasecki is intending to beat Signet at its own game. Six shops have opened already this year and another nine are due for the second half. Twenty shops are scheduled for 1998 and a further 20 for 1999.

The cost of opening these new shops is one reason why first-half figures look poor. The other is that Rolex, an important source of revenue for Goldsmiths, reduced retail margins. The expansion programme should help to reduce Goldsmiths' historical dependency on Rolex as very few of the new shops are earmarked to carry this luxury line. Goldsmiths' burgeoning insurance business and a new deal with Harrods to run its diamonds department are further reasons to think that the company's prospects look bright.

Forecasts from Charterhouse Tilney put Goldsmiths on a forward price- earnings ratio of about 17, making it look expensive. Luxury watch distributor Time Products, which announced a small increase in profit yesterday, are sitting on a p/e of about 9.

But given prospects at Goldsmiths, it might be worth hanging on to the shares.