The Investment Column: Hazlewood shares go stale as supermarkets squeeze prices

THE FOOD manufacturing sector is so out of fashion in the stock market it is a surprise there aren't more management teams thinking about taking their companies private. Hazlewood Foods, which makes sandwiches, pizzas and quiches for the major supermarkets, was asked yesterday whether it had considered such a move. They responded with a knowing smile but later indicated that they have no such plans.

However, it will certainly take some such plan to revive the shares which look about as appetising as a dried pizza crust. They have slumped from 240.5p last year to 95p, closing up 2p yesterday. They now trade on a forward multiple of less than 7 and yield more than 6 per cent.

The company expresses exasperation at its fate, but if management really feels its shares are so cheap it is odd they have not been buying back more stock. So far Hazlewood has bought back just 1 per cent of its shares, though it yesterday pledged to buy more, up to 125p. Kevin Higginson, finance director, says he is reluctant for gearing to rise much higher than its current 45 per cent.

The problem for Hazlewood is pressure from the supermarkets, which are funding a price war by pressing suppliers for better terms. The pain was evident in the pounds 15m exceptional costs linked to the group's withdrawal from the UK meats sector. This pushed Hazlewood to a pre-tax loss of pounds 9m for the six months to September. Still, stripping these out, underlying profits rose by a decent 7 per cent to pounds 21m.

Sales to the top five UK supermarkets account for 60 per cent of Hazlewood's turnover with the bulk in pizzas, sandwiches and ready-made meals. Here sales are up by an average of 7 per cent with sales of chilled sauces up a tasty 19 per cent. While Hazlewood wants to push the pain inflicted by the supermarkets back down the supply chain, it lacks their muscle and is sure to find margins continue to come under pressure.

With ABN Amro forecasting full-year profits of pounds 44m the shares are worth holding only for the yield.