Garden centres chain Dobbies unveiled a rise in profits yesterday as it highlighted why it has caught the eye of entrepreneur Sir Tom Hunter.
The Scottish businessman recently snapped up an additional 78,300 shares in the Dalkeith-based group to take his total holding in the company to 3.69 per cent.
The move sparked speculation that Sir Tom, who recently completed the #311 million acquisition of Hereford-based Wyevale Garden Centres, is planning to merge Dobbies and Wyevale.
His group - West Coast Capital - would not comment yesterday on any bid for Dobbies.
Richard Ratner, retail analyst at Seymour Pierce said he thought a move for Dobbies was very likely to come from Sir Tom, after he had finished bedding down his changes at Wyevale.
He said he expected an offer of around #12 a share - valuing the company at #120 million.
He said: "We think it is going to be bid for by Mr Hunter, without a doubt.
"Dobbies has the quality of buildings, the large centres, the economies of scale and visible merchandising that makes it very attractive.
"It is everything that Sir Tom and (Wyevale chairman) Jim Hodkinson are trying to achieve at Wyevale."
A bid would consolidate Wyevale's position as the largest garden centre, but would not be large enough to trigger an inquiry by the Monopolies and Mergers Commission. Mr Ratner said he expected a bid, although not immediately.
"This is still in the very early stages. There is a lot to do at Wyevale but after that Dobbies could be next.
"The garden centre market is very attractive. They are centres of retail excellence and family entertainment.
"It is a very sticky retail environment at the moment, but the demographics of garden centres are good. There is an aging population with more leisure time, who want to spend it at garden centres."
Yesterday Dobbies, which has sites at Atherstone and Shrewsbury in the Midlands, said first-half pretax profits for the six months to April 30 rose 3.6 per cent to #1.8 million, despite a difficult trading environment with weak consumer spending and a slow start to the spring season.
Group sales rose 7.4 per cent to #29.4 million, boosted by a six month contribution from the Stirling store, which opened in March 2005, and a small benefit from its latest centre at Cirencester, which opened in April.
Operating profit increased by 10.7 per cent to #2.9 million.
Dobbies added that like-for-like sales in the seven weeks to June 18 were up 6.5 per cent, an improvement on the three per cent seen in the first six months of the year.
The group, which owns 18 outlets in England and Scotland, is also developing new stores in Dunfermline in Scotland, Lisburn in Northern Ireland and Sheffield to be completed by the end of 2007, in addition to its new Milton Keynes store, due to open its doors in October.
Dobbies chief executive James Barnes said: "In the difficult trading conditions we have continued to move forward with like for like sales in the period since the half year up 6.4 per cent, bringing the year to date to -0.2 per cent.
"In addition, margins have widened, costs have been well managed, and we have been able to introduce and expand a number of new product ranges.
"We hope to add to our pipeline of new sites before the year end."
The group is raising its interim dividend by ten per cent to 3.52p per share.