Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Dobbies Garden Centres - can the shares really be worth this much

Dobbies Garden Centres came out with another positive trading statement this week.
For the 10 weeks to 7th January 2007, total sales increased by 31.7% and on a like-for-like basis, excluding new and refurbished stores, sales increased by 6.3%. Seemingly very impressive!

The Company's Preliminary Results for the year ended 31st October 2006 will be announced on 30th January 2007 and should be good reading.

With all the negative sentiment in the retail sector Dobbies has proved to be an exception to the rule. I can recommend visiting one of their excellent centres for the full retail experience, but notwithstanding the excellent results and the fact that with all that nice real estate support Dobbies’ shares represent an ideal inheritance tax portfolio stock it’s the presence of Tom Hunter that has driven the price up to the current heady level.

Have a look at the price chart and remind yourself that this is retail stock, albeit one with a few interesting properties. Having bumbled along at 550p/share for most of 2005, over the course of 2006 they have moved steadily up to the current level of c1260p-quite unbelievable!

Dobbies is now a business that has forecast revenue of c£69m for the year to end October 2006 and profit of c£5m to £6m at the top end, yet has a current market capitalisation of £126m. Even the 2007 forecast is only estimating net income of just over £6m which results in a PE of just under 30x 2007 estimates. The forecast yield is less than 1% and the net asset value at the end of last financial year was just under £40m.

I’m really beginning to wonder if they have found oil under some of their properties. It will certainly be interesting to learn about the plans for Dobbies in the Hunter stable and the justification for the hefty valuation

We shall wait and see when (and if) the Hunter gets its prey!


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