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An uphill battle at Nurdin

Digging Nurdin & Peacock, the UK's second-biggest cash-and-carry group, out of the hole in which it finds itself is clearly going to test the skills of the new chief executive, David Sims. Having only just started to recover from a disastrous foray into US-style discount warehouse retailing, it has now warned that last year's profits will be lower than expected and jettisoned its finance director.

The pre-tax figure is expected to be in the pounds 19m-pounds 20m range, around pounds 5m lower than analysts' expectations, for the year to December and the trend is moving the wrong way. The 1994 figures included large exceptionals for the closure of Cargo Club, the discount warehouse chain. Adding those back, and a further pounds 2.5m of Cargo Club trading losses taken in the 1995 results, means profits will have fallen from a peak of pounds 32.7m to a forecast pounds 22m in the space of three years, assuming analysts have done their sums correctly for this year. That would put the shares on a forward multiple of 12.

There are few silver linings to the clouds surrounding Nurdin. Some of last year's pain was exceptional. The Chancellor of the Exchequer's decision to cut the duty on whisky left Nurdin carrying hefty stocks and cost around pounds 500,000. The closure of a duplicated warehouse near Leeds took another pounds 500,000. But the main difficulty is more deep-seated.

Competition is intensifying, both among the cash-and-carry groups themselves and between the corner shops they service and the ever-expanding supermarket chains.

Although hot weather and the advent of the Lottery halted the steady attrition of small grocers last year, the long-term trend is for around 1 or 2 per cent to go out of business annually.

Nurdin suffered a double squeeze in 1995. Like-for-like sales growth slowed in the second half. But it has also seen a shift towards sales of lower-margin goods like beer, wine, spirits and tobacco as small shops move away from the areas of main competition with the supermarkets. The resulting margin loss of a third of a per cent represents a substantial loss in the context of overall returns on sales of just 1.8 per cent.

Mr Sims is pinning his hopes on expanding Nurdin's deliveries business, plus a pounds 15m investment in new systems and a second pounds 10m centralised distribution depot. But SHV, the Dutch owners of rival cash-and-carry group Makro, may offer a quicker route to salvation. Last year it proposed raising its current 14 per cent stake to a controlling level by injecting in the Makro operation. From March it is free to make a renewed offer. The Peacock family, who sit on 30 per cent of the shares, are likely to come under increasing pressure to accede to a reasonable bid. Hold.

Dilemma at

Alpha Airports

Alpha Airports, the in-flight catering to airport retailing group, has won few friends in the City since it was spun out of Forte two years ago and floated on the stock market. It lost a few more of its admirers yesterday after it said that profits in the full year would be below last year's.

Alpha is quite capable of standing on its own feet, but at the moment it faces problems moving forward because of the rapid consolidation taking place worldwide in the airport services business. In little more than a year the number of the main players in the industry has been cut in half to seven, principally through a series of agreed mergers.

The company is a small fish in a big pond, and the problems arising from the industry's upheaval have been compounded by airlines managing the profit margin by putting the squeeze on suppliers. Alpha's response has been to buy DynAir, which took it into to ground handling services and enabled the group to offer a comprehensive support package for airlines. The transition is working, but it will take time for big benefits to flow through because of the shortage of big contracts with airlines currently up for grabs.

This all adds up to a dilemma for investors. Should they continue to place their faith in the management's strategy, or should they cut their losses and sell in the belief that Alpha will continue to struggle?

With the shares now trading at 108p against the 140p flotation price, shareholders are sitting on a pile of negative equity. That loss could be reversed if Alpha succumbs to a takeover. The possibility stems from the 25 per cent stake in the company inherited by Granada from its acquisition of Forte. The disposal of the shares ranks low down on Granada's list of priorities, but it has said it will sell eventually.

The main list of potential suitors includes rivals like Ogden, Gate Gourmet, Dobbs and the recently formed airport services consortium bringing together Lufthansa, CaterAir and Sky Chef, which is now the market leader. Following yesterday's forecast downgrades from around pounds 21.5 to pounds 20.5m for the current year, the chances of a bid can only increase.

That the market has yet to swallow the theory is reflected in a forward price/earnings rato of 12 for the shares and a prospective gross yield of 5.5 per cent. But investors could do worse than hang on for further developments.

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