The Investment Column: Unappreciated plans at Hamleys

It is hard to find fault with Howard Dyer's strategy at Hamleys, the toy retailer best known for its flagship store on London's Regent Street. But while his ideas make sense, their merit has yet to be reflected in the share price, which has suffered from the market's general unwillingness to back smaller company stocks.

The sentiment issue was in evidence yesterday when Hamleys' shares shed a further 11.5p to 317.5p, due mainly to half-year profits hit by sterling's strength - affecting tourist spending in London - and the cost of the pounds 8.7m acquisition of the Toy Stack chain in May.

The combination forced interim profits down from pounds 1.98m to pounds 1.86m. However, the long-term merits of the strategy bear repeating. The plan is to capitalise on the strength of Hamleys' brand by investing further in the main store and in high-profile satellite outlets in international airports.

The Toy Stack acquisition should enable Hamleys to build market share and utilise its buying strength without the brand dilution that opening a Hamleys on every high street would inevitably lead to. The company is also expanding in department stores through the House of Toys concessions in 47 branches of Debenhams.

Management has been strengthened with David Fogel, the Toy Stack founder, appointed head of buying and a new chief executive on board.

Hamleys is developing its own-label range which will help margins. Own label already accounts for 10 per cent of sales in the Regent Street store, even though there are only 400 products out of a total of over 40,000.

On a forward multiple of just 13 Hamleys' shares are at a substantial sector discount. That should be corrected in time. And a bid is always possible from an international player seeking a trophy asset. Hold on.