Last week Amstrad and Ross Electronics, the headphones and accessories maker, surprised the market with profit warnings, saying that demand ahead of the Christmas shopping season was sluggish .
Both companies said trading conditions last month were worse than expected and were still tough. Ross added that it was taking steps to reduce overheads further but the measures would result in exceptional charges of at least pounds 2m in the year ending 31 December.
The warnings led to a sharp drop in both shares but was more severe in Ross's case. Its shares slumped almost 30 per cent to 16p on Friday, valuing the company at about pounds 18m.
That, however, reflected not only concern about the economy but also growing dissatisfaction among City investors with Ross's financial performance over the past year.
'Several institutions are not happy at present,' a source with close knowledge of the company said. 'They feel that it has not performed up to expectations despite being supported with several share issues.' There are also growing fears that some big investors want to sell out. On Friday the market was awash with speculation that at least one institutional shareholder was looking for a buyer but was unable to find one.
Not surprisingly, the shares are languishing at a two-year low. Ross was floated on the Unlisted Securities Market with much fanfare in the summer of 1987. But two years later it ran into serious financial difficuties, only to be rescued by a management buy-in. This was led by Roger Shute, former chairman of BM Group, the acquisitive engineering group, and Noel Hayes, the former City corporate financier.
The team sought to expand by buying electrical products and distribution companies, funded with the company's by then soaring share price. But the market's growing disenchantment with acquisition-led companies, coupled with Mr Shute's departure because of ill health, has taken the gloss off the shares.
In April, the company reported a threefold increase in pre-tax profits to pounds 3.7m on sales of pounds 51m in 1992. But this year, first-half taxable profits halved to pounds 602,000, although the dividend was pegged at 0.2p a share.
Following last week's profits warning, City analysts expect Ross barely to break even for the full year. The company said the cutbacks would enable it to make 'very significant' progress towards achieving its target of 10 per cent return on sales in 1994 and 20 per cent return on capital employed.
The completion of two Far East acquisitions last week for pounds 4m from Tomei, a Hong Kong company, should help in meeting those goals in the long term. Although Tomei, with a 12 per cent stake in Ross, provides some bid interest, the shares should be treated with caution for now.Reuse content