Good news at last from Fisher
THE INVESTMENT COLUMN
Management, led by chief executive Stephen Walls, is now sounding pretty bullish and investors must hope that three years of restructuring and under-performance is about to turn into a phase of sustained growth.
Albert Fisher certainly needs one after a period of drift during which the shares have fallen a long way from their most recent peak of 130p in 1991. Yesterday they finished 1.5p lower at 53p.
Like most food groups, Fisher has been subjected to the twin squeeze of the powerful supermarkets and rising raw material costs. It has responded by moving away from commodity products towards added-value ranges in an attempt to protect itself from the worst of the pinch.
Commodity products now account for 35 per cent of group sales compared with 65 per cent three years ago and Mr Walls expects that figure to fall steadily. The hope is that Albert Fisher will become less prone to natural disasters such as the hurricanes and floods that have regularly pulled the rug from underneath the company.
Added-value items such as prepared meals and sauces represent 20 per cent of the American division, though it is a moot point whether washing and chopping lettuce before putting it in a bag really qualifies. Certainly the US was the star performer last year, with profits jumping from pounds 6.4m to pounds 16.9m. But this was flattered by strong lettuce prices, which added around $2m to the profit figures.
The seafood sector was more disappointing but the division is now under new management and a recovery is expected this year. There should also be further growth in the sauces and dressings business, where a new factory is being built to cope with additional demand from customers like McDonalds, Sainsbury and Waitrose.
Mr Walls says Fisher is now down to its core businesses and no further disposals are expected. In-fill acquisitions are, however, on the agenda.
Management must now fulfil the upbeat promises it has made and although the shares offer a good yield, the company is still relatively exposed to commodity areas. BZW is forecasting profits of pounds 42m for the current year, putting the shares on a forward rating of 12. About right.
The market has become so blase about the travails of the construction sector, and especially of J Mowlem, one of its more troubled constituents, that it pretty much shrugged off the departure yesterday of the company's chief executive, John Marshall. The shares lost just 3p to 58p, although that puts them within a whisker of their recent low, hit in August 1992, and means they have lost almost 90 per cent of their value since they peaked in 1989.
After the announcement a month ago that the company had plunged into a pounds 31.8m loss, mainly thanks to the heavy costs of refocusing itself on a profitable core, it was perhaps no surprise that senior heads would roll. Ken Minton, chairman since the summer, has clear views about where he should take Mowlem and his ideas plainly did not chime with Mr Marshall's. His replacement is the group's construction head, who will have an intimate knowledge of one of the four areas the company has decided to focus on.
Whether the shares, after their recent dismal performance, are worth looking at again is hard to say. On the positive side, Mr Minton's strategy seems to make sense - stripping out the businesses, such as London City Airport, which cannot pay their way, reducing overheads to match the low level of business available and focusing on activities where a decent return is achievable.
But following the worse-than-expected red ink in September, analysts have become a great deal more circumspect about their forecasts and, even after the recent fall, the shares do not appear unduly cheap on earnings grounds.
Smith New Court has pencilled in profits of pounds 4.5m for the current year to December, disregarding the exceptional restructuring write-off that smashed a hole in first-half figures and will do so again at the full- year stage. Next year, pounds 8.5m could be achievable, implying earnings per share of 4.1p and a prospective price/earnings ratio of 14.
That is hardly compelling, especially as the shares, on the basis of a promised 2p final dividend, yield only 4.3 per cent, close to the market average. Given all the uncertainty, the shares are unlikely to reverse recent weakness.
New radio group
tunes in to AIM
Independent Radio is giving a shot in the arm to the fledgling Alternative Investment Market by raising pounds 9.7m in a mainly institutional placing. It is a large sum for a start-up, representing almost double the next biggest cash raising on AIM and nearly a quarter of the pounds 40.3m total garnered in new cash by the market to date. But Independent's executive management, led by Michael Connolly, has a strong track record in the business, having successfully turned round the Preston-based Trans World Communications radio group before selling it last year to EMAP for pounds 71m.
The money now being raised by Independent represents seed-corn finance for a predatory venture hoping to scoop up small radio stations which have won licences to operate in the north of England. The group has identified 30 such outfits which may be willing to sell out, particularly where initial investors backed start-ups to take advantage of the Business Expansion Scheme tax breaks and are now looking for a way out.
Prices vary, but for a typical outlay of pounds 1m, Mr Connolly thinks they can secure an audience of up to 800,000 a time. The second strand of the strategy is to attempt to win the licences for Yorkshire and East Midlands, the two largest franchises to be allocated by the Radio Authority next year. Success would involve expenditure on studios and other infrastructure and the intention would be to return to shareholders for the cash.
The potential is undoubtedly there, given the rapid growth in commercial radio advertising. The strength of Independent's management gives it a decent chance to exploit that potential, as yesterday's 17p closing premium to the 100p placing price recognises. But given the risks with any start- up, the shares should not be chased.
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