Bottom Line: Overrated Ellis

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The Independent Online
IT IS no fun being a distributor, caught between makers and users determined to cut costs to the bone. So it is not surprising to see Ellis & Everard, the commodity chemicals distributor, having a hard time.

For the year to 30 April pre-tax profits slipped by 3 per cent to pounds 12.2m. Adjusted for a goodwill write-off in 1992, earnings per share fell to 10.3p from 11.5p.

Profit margins in this business have never been large - in 1990 Ellis earned 6 per cent on sales. But in the current climate that looks good. In the year just past operating margins fell from 4 to 3.5 per cent.

Ellis says prices are in a cyclical trough and the group will recover strongly when they rise again. But it is not clear when they will recover. Trimming costs will provide some growth this year. If it makes pounds 15.7m pre-tax profits, the prospective p/e is 15.2. That is ahead of both the market and the chemicals sector.

The shares fell 3p to 208p yesterday, having climbed from a 12-month low of 152p in September. The dividend, maintained for 1993 at 7.05p, may inch up this year, putting the shares on a prospective yield of 4.3 per cent. Even then Ellis does not deserve its premium rating. Sell.