Hillsdown sticks with diverse menu

Little more than a year into the job of chief executive of Hillsdown Holdings, the food and housebuilding conglomerate, and George Greener is already speaking glowingly about his new charge. His sentences are studded with management gobbledegook such as "economic value added", "mutuality of benefit" and the dreaded "core competencies".

But the City will forgive him much more than this if he can kick-start a company whose shares have underperformed the market by 34 per cent in the past three years. On yesterday's evidence, there is a way to go yet.

With his strategic review completed, it is clear there will be no radical shake-up of the Hillsdown portfolio, which still includes a diverse spread of businesses, including Typhoo tea, ready-made meals and Fairview Homes. There are no plans to sell the non-food businesses. Instead Hillsdown plans to withdraw from its red meat operations and sell a host of other businesses in packaging and leather with total assets of pounds 85m. Talks on deals are well advanced and the company is planning a pounds 30m write-down in the full-year figures.

But, looking at Hillsdown's half-year figures, it is clear that there are potential dangers ahead. Pre-tax profits for the six months to June rose from pounds 44m to pounds 57m. But at the operating level, profits at three of the four food businesses fell. The figures were rescued by a strong performance from the furniture and house-building businesses, which are clearly benefiting from the upswing in the economic cycle.

The worry is that when the economy comes off the boil, Hillsdown will hit the buffers unless its food businesses can start generating growth. At the moment they are very much a mixed bag. The chilled business is performing well, poultry was badly affected by a freak viral outbreak in the sector which cost pounds 2.5m, and the grocery businesses are struggling.

On forecasts of pounds 165m, the shares, up 6p to 169.5p yesterday, trade on a forward rating of just 10. This is a substantial discount to the sector, while a yield of more than 6 per cent provides support.

But the City will want to see more evidence of growth in food before the shares enjoy a re-rating. Potentially a good bet, but perhaps too early to chase just now.