Christian Salvesen looks overvalued - one to avoid

Dawson delivers in hard times; Conditions remain tough for Acal

It has been a dramatic few months at Christian Salvesen, the distribution group. In February the company issued a profits warning saying intense margin pressure in its UK food and consumer division had damaged trading. The shares started to recover but then plunged again last month after the company said takeover talks had ended with an unnamed financial buyer.

Yesterday's full year results were never going to match all that for excitement but at least underlying profits came in marginally ahead of expectations at £20m. However, exceptional charges pushed the group into a £5m loss and the dividend was slashed to just 3.65p per share.

There has been some progress since February's warning but many uncertainties still remain. The German business, which lost £5m last year, has been flogged to the management for a nominal sum. This has removed a perennial under-performer from the group despite entailing a £20m write-off.

The Spanish industrial business is gradually being turned round and should break even this year. The UK industrial operation, in which both volumes and margins are under pressure, has been restructured and was trading profitably in the second half.

The outlook statement hardly inspired confidence with the UK industrial business remaining under pressure. Furthermore manufacturing will remain in recession and competition is expected to remain intense in the food and consumer division. Rising pension costs are another problem.

The main positive was a whisper that chairman Jonathan Fry's retirement might rekindle takeover talks. But on fundamentals the shares look less attractive. They fell 0.5p to 60.5p yesterday which, with analysts forecasting current year profits of £24m, puts them on a forward price/earnings rating of 9. Avoid.

Dawson delivers in hard times

Dawson Holdings is responsible for getting this newspaper and the others to your local newsagent. It also distributes magazines and other non-perishable goods using its network of depots and white vans.

Delivery of papers and magazines is neatly carved up between three players, who do not encroach on each other's turf: Dawson, WH Smith and Menzies.

So the challenge is not competitive pressure of rivals pinching your customers, but of keeping your costs down, as the margins are wafer thin, and of managing the long-term decline we have seen in newspaper readership.

Yesterday's interim figures showed Dawson is on top of the situation. It reported a 40 per cent jump in pre-tax profit, to £6.0m, on turnover that slipped 3 per cent in the core news division. For the six months to 29 March, turnover was hit by the most recent tabloid price war (the company gets a percentage of the cover price) but that appears to be over and broadsheets are gently raising their prices. Meanwhile, magazines continue to boom, driven by the public appetite for celebrity gossip titles.

The shares closed up 5p to 117.5p, putting the stock on an undemanding forward multiple of 10, and yielding 5.5 per cent. That's attractive.

Conditions remain tough for Acal

Life might not be getting any easier for Acal but neither does it seem to be getting any tougher. Around a third of the company's sales come from distributing electronic components while the bulk of the balance comes from supplying IT parts.

Yesterday's financial results reflect the tough conditions seen last year when customers, especially those in the finance sector, were keeping a tight rein on their budgets.

Pre-tax profits fell by six per cent to £13.4m in the year to 31 March while sales dropped eight per cent to £272m including a 19 per cent drop in sales in its electronic components arm.

Although the company does not have much visibility on future orders, it reckons trading has stabilised and is, perhaps, even starting to show early signs of picking up.

Another plus point is that it is not overly exposed to any one industry sector and none of its customers accounts for more than about three per cent of group sales.

Brokers predict a £16m profit this year, translating to earnings of around 40p a share. That puts the stock, which closed up 8 per cent at 527.5p yesterday, on a forward rating of 13 times. Not cheap but worth holding in the hope of a more solid trading environment emerging.