Investment column: Thin margins at ISA

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The Independent Online
THINGS ARE looking grim for ISA International. The distributor of office supplies and stationery yesterday issued its second profit warning in seven months, and saw its already-battered share price collapse 34 per cent to an all-time low of 41p. The company said a squeeze on margins in its core markets meant that 1998 profits would be "materially below current market expectations" of around pounds 8.7m.

City analysts slashed their forecasts for pre-tax profits to pounds 6m in response and warned of more trouble to come.

ISA's woes are unlikely to ease in the near term. The European market for printer cartridges, toners and similar electronic office supplies, which accounts for the bulk of the company's sales, is highly competitive and margins on these goods are likely to remain depressed.

More traditional office supplies, such as pens and paper, yield higher margins, but ISA is a relative newcomer to the market and will need time to integrate John Heath & Co, the stationery wholesaler it bought in February.

Optimists point out that in the long run, cross-selling of electronic supplies and traditional stationery should bolster profits. Failing that, the slump in shares from their peak of 240p, reached in December 1996, could attract the interest of a predator.

But with most of ISA's competitors struggling with similar problems, it is hard to see where a bid might come from. So, even with its bargain- basement rating of five, ISA looks one to stay well clear of. For those unlucky enough to hold the stock already, however, there does not seem much point in baling out at these low levels.