View from City Road: Albert Fisher bears are smug

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THE stock market bears who have relentlessly pushed down Albert Fisher's shares were vindicated by yesterday's profits warning. They can now claim their scepticism about its attempt to rehabilitate itself through openness and conservative accounting was justified; there was something rotten in the state of the business.

That may seem too harsh given that its problems stem largely from a bumper fruit and vegetable harvest - something it can hardly be expected to control - causing an 'unprecedented and unforseen' oversupply that has sent prices tumbling.

But investors were focusing more on the statement about dividends, and that gave them cause to worry that there may be far worse to come.

The refusal to forecast the final dividend sits oddly with its emphasis on balance sheet strength, cash generation and absence of debt. Even on reduced forecasts of pounds 63m before tax, a maintained 3.75p dividend would be almost twice covered by earnings, while the pounds 22m cost should be affordable given its pounds 253m of net assets and pounds 14m of cash.

Tony Millar, chairman, says the lack of a forecast reflects the fact that the dividend decision will not be taken until October and, given the speed of the current downturn, it is difficult to gauge whether trading has reached its bottom.

More fundamentally, however, the City is now starting to wonder whether the present glut masks more fundamental problems in Albert Fisher's business. Traditionally, its success has depended on offering superior service or exploiting gaps in the market. As the fresh produce market becomes more mature, these gaps may no longer be there to fill.

Albert Fisher may yet be able to demonstrate that the City has got it wrong but until then, the shares are likely to remain depressed, despite falling 38 per cent to 41p yesterday. On a maintained dividend, they would yield 12.4 per cent, but the equivocal dividend statement means income funds will be wary of buying. If analysts' forecasts are met, the prospective multiple is just 5.6 times earnings, but recovery funds will want to be convinced there will be one before they will buy.