today's guardian "Among the small caps, market professionals were nibbling away at Homestyle, the Rosebys and Bensons Beds retailer, after they learned In vestec Securities had put the stock back on its buy list with a prediction that a re-rating is on the cards.

Readers will recall that Investec's two retail analysts, Matthew McEachran and Mark Charnock, have successfully called the recent turn in fortunes at Mothercare, 6p higher at 309.5p, JJB Sports, 11p lower at 283.5p, and Matalan, off 0.75p at 250.25p.

Having visited a number of Homestyle stores in the past week the Investec duo believe that the sales increase referred to in the company's recent trading update can be sustained. "Based on our current forecasts, the shares could recover by 30% to 170p, while still retaining a substantial 30% discount to its peers," Mr McEachran said. Homestyle rose 3p to 132p.

The principal thing holding back HME is uncertainty. There were to parts to this.

1) The question of the sale of Rexmore House and Ross Fabrics wholesale textile distribution businesses to their current management for 5.5 mln stg.
This has now been completed. With a payment of 2.25 mln. cash plus the balance of 3.25 mln in 6 pct cumulative redeemable.
The proceeds being used to reduce debt & as working capital.

2) The claim by HM customs & excise for VAT to be levied on extended structural guarantees.

Here is the relevant extract from the annual accounts (30th July):-

HM CUSTOMS & EXCISE CLAIM

HM Customs & Excise have challenged the Company's VAT treatment for extended
structural guarantees. The Company has appealed the assessments and, on the
basis of legal advice, intends to contest them vigorously. Since last autumn,
the Company has held constructive discussions with HM Customs & Excise to
explore the possibility of removing the uncertainty with a settlement. Although
progress has been made and discussions continue in respect of certain matters,
the Board now expect resolution of the issues by litigation involving other
retailers who have adopted similar arrangements.

Since January 2003, no new sales of the extended structural guarantees have been
made in the format being challenged by Customs. The Company has received legal
and taxation advice that the maximum potential exposure to pay VAT remains at
approximately 27.3 million (excluding interest) and would be expected to be
offset by the recovery of approximately 7.5 million of insurance premium tax
paid on the sale of extended structural guarantees, and by corporation tax
relief, indicating a potential net exposure for the company of 15 million after
corporation tax.

One possible reason for the recent surge is that progress has been made in resolving this issue, but that is just conjecture on my part.

Apart from the effects of the case with HM C & E, HME are on a historic P/E of 4.6 which is expected to rise to 6.8. I have no way of knowing to what extent these figures will be affected by the reduction of interest as debt is repaid from the proceeds of the Rexmore sale.

It seemed to me like a good buy some time back but I dropped out as the price fell. I am now back in and expect a significant profit over the next few weeks!

They may not rise to a P/E of 10 but a lowly 8 will see me very nicely in profit!


Fly by Night

Red

LONDON (AFX) - Homestyle Group PLC said trading in the seven weeks to Nov 1 was ahead on a year-on-year basis in both its main divisions - Beds and Textiles and Furniture.

The group said its Beds and Textiles operations have continued to trade in line with the trends indicated at the company's annual meeting and the division's performance is ahead of a year earlier.

The Furniture Division reported a 4 pct increase in like-for-like sales in the seven week period - continuing a positive performance seen since the August bank holiday weekend - but the company warned it 'continues to operate in a challenging trading environment.'

But the group cautioned that although this performance is encouraging, 'it is still too early to assess whether this progress can be sustained through the important Christmas and New Year trading periods

Watch it on these Gordon. Evil K has currently a very large short position on the stock, and that means he'l have plenty of followers in aswell. I know hes not right all the time, buy Ive been on the end of one of his short positions and I can tell you I got badly burnt.

cheers GF.

homestyle is not going south IMHO they are worth more than 2.00 been here before when they were called rosebys they have to sort harveys out and with 4% sales rise this will flow stright to bottom line they generate good levels
of cash when not refurbishing stores this programm finish can see debt down 20M by interims mkt cap less than 100 and will make easily 15m so why short it

can see it trading sideway till results also collected nice 7.25p divi recently

i couldn't get up bet on HME with IG as small cap company and illequid not sure who is taking bets on homestyle please advise ?

Gordon, Evils short as he is on a few retailers because he feels the consumer bubble is going to burst any day now. Hes going for retailers and credit companies. Not sure just who he has is bet on with but he normally uses Cantor as the top man there is a buddy.

cheers gf.

happy with trading statement and if can get beyond 145p will see 170p before
end of year IMHO can assume the issue re retailers but this at bargain basement price is not next ....

this sort of stock goes thru recessions like butter but tends to get stuck
when it shouldn't

the cash generation should sort it out and once debt down and vat sorted can see 300p again not sure i will be in it that long though

did you read my letter in shares mag re hme they sat on the fence ...

No havent got this weeks yet, but will get a copy. Thanks for your comments.
Much appreciated.

cheers GF.

looks like could be up to the 145p mark today and the bet from your mate begins to look shaky..

results due next week half decent set of results could see more upgrades and
160p shortly and 200p before to long ???

Also could hear about proposed split up/mbo if rumour had any substance to them ???

would be nice to see gg, though i am not expecting great shakes in the short term myself - i think we may have to wait a little past this set of results (hope I'm wrong though)

losing faith not great set of results and no divi

As i expected i'm afraid - sold mine, will look to buy back in later

down 11p to 123p, glad i got out for the short term

GG - you still holding/watching these. I guess we have now got to try to call the bottom!!!

still hold some offloaded some when 157-158 few weeks ago going to forget about this one for while are you also in thus ?

yes i have a small amount tucked away - currently trying to ignore this weeks pricemovements - would like to know whats driving it - can't find any news. GG how do i e-mail you on this site - i will drop you an e-mail with all my holdings - your views on all/any would be appreciated

whats driving it was the poor results and cutting the divi and the debt going up but L4L sales were positive which starts to balance things up

post your holdings here noone else seems to
be using this thread

Had a better read last night, there was some good sales news hidden. My biggest concern is the increasing debt and the fact they are not producing cash - Dec/Jan are going to be highly critical trading wise. I'm happy to sit on the sidelines and try and gauge how their xmas trading goes before venturing back in.

I'm currently holding:

ISA: SKP,RTD,LLOY,DNX and some cash
Dealing account: all cash
Spreads long: GSK,THUS,GFRD (jun/Sep futures)
Invest Club: SKP,BSY,GSK,RTD,TTC,TRK,RAC,HBOS,BYG