Struggle goes on at Hodder

The stock market can be an unforgiving master, as publisher Hodder Headline learnt yesterday. A second-half profits warning sent the shares skidding 109p to 234p, knocking pounds 40m off the company's market capitalisation.

In the first six months to June, Hodder struggled to raise profits 5 per cent to pounds 2.4m, on sales 12 per cent ahead at pounds 38.2m, and the full year will now be below expectations, the company warned.

The share price drop was clearly an over-reaction, but understandable in the circumstances.

The book business has had a very slow summer indeed, despite some high- profile discounting by companies such as Hodder Headline, a leading challenger of the net book agreement, which provides a floor price for most of the books sold in the UK.

The company's chief executive Tim Hely Hutchinson has long argued that the NBA is an unnecessary relic in the modern age of aggressive retailing. The theory is that its abolition would lead to higher volumes to offset the effects of heavy discounting.

But if the US is any indication, truly big volumes would require a radical shake-up of the retail market. In the meantime, only selected cut-rate titles are available in the UK, and then only through non-traditional outlets like Asda supermarkets. Hodder Headline has about 30 per cent of this secondary market, but even so cannot achieve much better than 7 per cent margins.

The long-term trends are probably with Mr Hely Hutchinson but that won't help much in the short term and, standing on a historic p/e of 15, the shares are unattractive.