Geest stuck on its banana boat

Banana skin jokes are wearing a little thin with investors in Geest, which with the Irish group Fyffes dominates the import of bananas into the UK.

The shares have plunged from a high of 479p two years ago to a new low of 159p, perilously near their 1986 flotation price of 125p.

The reasons are not hard to find. Having seen its plantations ravaged by the dread black sigatoka disease and weighed down by a glut of bananas, Geest had a tough 1993. But last year its sufferings were of positively Biblical proportions, as its Windward Islands producers coped with drought, followed in quick succession by the depradations of storm Debbie.

In the circumstances, yesterday's pre-tax profits of £12.8m for the year to December were not a bad result, coming after the hefty exceptional charges and loss of £5.4m in 1993.

The results were a touch ahead of the company's profit warning in January, when Geest braced the market for last year's loss of Windward volumes. In the event, they cost the best part of £7m, although fresh produce - essentially bananas - saw profits more than double to £13m.

But the pain is continuing into the new year. The chief executive, David Sugden, warned yesterday that the after-effects of Debbie would cut first- half earnings to below last year's record level, when pre-tax profits hit £17.9m.

Beyond that, he admitted that the growth prospects for the business are limited.

It is hardly surprising that Geest is emphasising the attractiveness of its prepared foods business. Sales grew 32 per cent to £141m, a couple of points ahead of the market, last year, while profits leapt 44 per cent to £7.5m. Geest is pumping £18.7m into the division this year, up from £8.8m last time, and expects profits to hit £10m.

But while he sees chilled prepared foods as "the main engine" of the group's future growth, Mr Sugden has set his face against any demerger of the banana business.

That strategy looks fundamentally flawed while bananas clearly remain the core of the business and with Fyffes offering better returns.

Profits this year of somewhere over £15m would put the shares on a forward multiple of around 11. That would still be less than half the profits level achieved in 1993/4 by Fyffes, which has accelerated away from Geest in the last two years.

With the shares on the floor, the only thing standing between the company and a hostile bidder appears to be the distractions and financial difficulties of big US rivals like Dole and Chiquita. While a takeover remains a possibility, however, and supported by a maintained dividend of 8.1p, the shares are worth holding onto.