View from City Road: Mundane Menzies

HANDS UP, everyone who thought John Menzies was a retailer? Wrong. The Edinburgh-based group's decision to break down its figures for the first time shows that pounds 11m - less than two-fifths of its trading profits - come from shops. The pounds 18.5m bulk comes from the wholesaling and distribution of newspapers, magazines, books and recorded music. The division accounts for pounds 706m of the group's pounds 1.1bn turnover.

It was a happily timed disclosure. With the stock market in free-fall yesterday, investors were only too happy to find a stock with the defensive, if unexciting, qualities of a distribution company. The shares put on 2p to 383p, also buoyed by the better-than- expected pre-tax line of pounds 25.4m. The final dividend of 6.4p makes a total for the year to 2 May of 10p, up 6.4 per cent.

The company is further reducing its retailing exposure. It is desperately trying to rid itself of its disastrous Early Learning Centre shops in the US. (ELC in the UK remains profitable, achieving like-for-like sales increases of 10 1/2 per cent, compared with 4 1/2 per cent for the Menzies newsagents, which were hit by high rents and rates increases). The group set aside pounds 15m two years ago to sort out ELC Inc. It has not been enough. Yesterday it made another extraordinary provision of pounds 7m that will cover the maximum loss of getting out of the business, either by selling or closing it.

John Menzies insists there is no strategic aim to move further from retailing towards distribution. That is despite two deals announced yesterday - the pounds 6.8m sale of the Hammicks bookshops chain, and the pounds 2.9m purchase of Waverley Cameron's office products distribution arm.

Pre-tax profits of pounds 28m for the current year translate into earnings of 30.4p, a price/earnings multiple of 12.6 - undemanding for a retailer, more generous for a distribution company.

John Menzies has proved accident-prone in the past. There were embarrassing stock write-downs last year. The ELC Inc saga is not over yet. A monopolies investigation of the compact disc market - a possibility - could only harm its TBD subsidiary, the largest music distributor in Britain. With control in the hands of the Menzies family, there is not even the prospect of a bid to inject some zip into the shares. Steer clear of them.