Mersey pays the price of dispute; The Investment Column

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Mersey Docks has a good ports business, operating in a growth market, although it did its best to disguise the fact in the six months to June when profits fell 17 per cent to pounds 13.9m. The running sore of a dispute with sacked dockers and the cost of a foolish foray into ferry services to Holland did the damage and will continue to do so until a compromise can be agreed on the former and a satisfactory withdrawal negotiated from the latter.

Strip out the pounds 4.5m loss recorded by the Eurolink Sheerness to Vlissingen ferry line, the pounds 600,000 legal cost of the unresolved row with the 329 dockers the company sacked last year and pounds 900,000 in one-off severance costs, and profits actually moved ahead by a useful 15 per cent in the core ports business. Total throughput in Liverpool was up 6 per cent with good performances across the board from oil to general cargo and containers, although the company worries that a continuation of the dispute could hit new business. The Medway ports appear to have disproved the Jeremiahs who predicted that the Channel Tunnel would wipe out its business.

The problem at Mersey is the same as that afflicting all port operators who get bored running a relatively simple business and think they can improve returns by trying their hand at something else. Hence the silly attempt to protect pounds 1m of docking fees at Sheerness by taking on a passenger and freight service that was closing down.

Running ports is a natural geographical monopoly whereas operating shipping services, as P&O and Stena have found in the Channel, is open to competition from any Tom, Dick and Harry. Mersey has made headway on the Irish Sea in recent years, but its rivals have twigged and it remains to be seen how much of an impact the new capacity coming on stream will have.

If Mersey makes pounds 33m this year and pounds 40m next time, the shares, down 11p to 404p, trade on a prospective multiple of 17 falling to 13. Given the remaining uncertainty surrounding the Liverpool dispute, a question mark over the final cost of the Eurolink withdrawal and doubts over Irish Sea profits, there is better value in AB Ports and Forth.