Gus - battered not bowed

If there is one thing the City still hates, it is conglomerates. Great Universal Stores may be a lot more focused than it was in the days when the Wolfson family was in control, but there are still enough bits under one roof for its shares to react sharply to all sorts of unrelated events.

In the last few months the shares have been battered by concern that Americans would not open their mail because of anthrax scares - Gus's Experian business has a marketing solutions business which is heavily involved in direct mail - buoyed by an encouraging presentation from its Argos operations, depressed by the impact on its Burberry subsidiary of the drop in the luxury goods market following the attacks on 11 September, hit by concerns that a US recession would mean less demand for loans and hence its credit scoring business, then buoyed by the realisation that rapid cuts in US interest rates were encouraging Americans to borrow, or at least refinance.

The real pity is that these gyrations mask a solid performance from all the group's businesses. Like most US businesses, Experian's trading did suffer after the terrorist attacks, but it has recovered well, as interest rate cuts start to work.

Burberry, too, has proved resilient despite the cooling of the luxury goods market. While its retail stores in places such as Hawaii, which are dependent on visiting Japanese and Americans, have suffered since 11 September the trend is now improving. More encouraging, its wholesale business, which accounts for two-thirds of Burberry's business, has been virtually unaffected and, judging by orders for the summer, it should manage to boost sales by at least 10 per cent. That raised hopes that the partial flotation planned for next year will go ahead.

At Argos, meanwhile, growth continues apace, with both sales and operating profits up by almost a quarter as a raft of initiatives such as store refurbishments continue to fuel sales.

Even the home shopping business, for so long the Achilles' heel of the group, is responding to treatment. While sales fell as Gus continued to weed out unprofitable customers, profits grew by 30 per cent as the remaining customers spent more. Experiments such as Abound, a new catalogue targeted at specific people but without the expensive extras such as credit offered on the traditional catalogue, could boost the division further.

But Gus does share some of the blame for the volatile share price. While the amount of information provided has increased substantially over recent years - last week, there was an exhaustive presentation on Experian - it still irritates investors by leaving out some key bits of information. Thus it disclosed the losses made by Argos Additions, the new direct delivery catalogue available through its stores, in the previous year, it did not reveal performance for the current year so far. Likewise, it disclosed in detail the impact of 11 September on Experian and Burberry in October but did not extend that into November.

Last week was one of the better ones for the shares, but they remain cheap compared with other retailers. If you have the stomach for volatility, they are a solid buy.



For Iceland, it's still quite cold out there

Frozen foods group Iceland may be planning to rename itself Big Food but, as Philip Dorgan, retail analyst with WestLB Panmure points out, it still makes only a small profit. The list of key initiatives outlined by chief executive Bill Grimsey (20 are included in the results announcement alone) underlines the fact that bedding down the merger between Iceland and Booker is the least of his problems.

Grimsey is encouraged by the fact that, after more than a year of falling sales, Iceland seems to be stabilising. But a 0.1 per cent rise in the nine weeks to 17 November is hardly staggering. Iceland has still to prove that its frozen food formula has growth potential when its products are available at the local Tesco or Sainsbury.

That challenge is implicit in its decision to test an extension to its home shopping service, which will offer a range of Booker goods, as well as bread, dairy and vegetables sourced from local suppliers. Fortunately, as there is a big risk that it will simply pile on costs but generate few extra sales, this will be started as a small-scale trial .

The merger may have highlighted unexpected weaknesses in Iceland, but Booker is hardly the strongest of businesses. Grimsey is full of plans to revitalise it, including boosting its Premier fascia, sold through corner shops, and testing a wholesale delivery service. Grimsey is confident that will help double its market share from 6 per cent. Booker investors have heard similar claims too often to believe it until they see it.

Iceland's shares have recovered strongly from the shock of last year's profits warnings. Based on forecasts of £40 million for the current year, the shares trade on more than 20 times earnings. That is high enough until there is evidence that Grimsey can deliver his promises.



Water windfall makes investors happy

AWG, as Anglian Water is now known, duly unveiled its restructuring plans last week. Shareholders will get a bit of cash back - £400m or so - while customers will find themselves supplied by a company whose business is solely to supply their water, clean up their beaches and look after their sewage. Pennon, as Southwest Water is now known, is likely to do something similar shortly.

Those who think that sounds pretty similar to the way the water companies looked when they were privatised would be right. The difference now is that the water services businesses will be financed solely by debt as low-interest rates, combined with falling utility prices caused by regulatory blight, mean debt is now a far cheaper way of financing these companies than shares. And instead of customers owning their water company, it will be owned by the unregulated business - which, in AWG's case, encompasses everything from water services in Chile to Morrison Construction.

This 'ring fence', so AWG says, will make it easier to withstand regulatory reviews, while allowing the unregulated business to carry on expanding. Shareholders, happily pocketing the £400m bonus from the restructuring, are hardly likely to question that logic.