Bottom Line: Hall's test of loyalty

SHARES in Hall Engineering, the Shrewsbury-based metal basher, fell from 240p to 169p yesterday after the company issued a profits warning.

This must be especially galling to shareholders who accepted the offer of an enhanced scrip dividend in lieu of last year's interim payment at a price of 272p and are still hanging on to the shares.

Although last autumn's enhanced scrip effort was described at the time as a one-off, Hall is testing its shareholders' loyalty to the full by indicating that it is now thinking about offering another paper substitute for a cash dividend.

Things look tough for Hall, a steel stockholder and processor. Analysts have cut their profit forecasts and instead of anticipating a small advance, now expect that Hall will make pre-tax profits of pounds 5.5m this year, 40 per cent down on 1993.

Slump has followed quickly from recovery. Hall shares outperformed the market average by more than 100 per cent in the year to March, leading up to publication of more than doubled pre-tax profits of pounds 8.5m. No wonder Hall's enhanced scrip proved so popular.

Just in case shareholders are, justifiably, wary of another paper dividend, Hall - in which M&G is a 15 per cent holder - promised yesterday to pay a maintained cash dividend of 9.5p this year, provided that there is no further deterioration in trading.

At yesterday's price, the gross yield is 8.5 per cent. This shows just how seriously the market is taking this promise and is a clear indication that it foresees more trouble, even if the company itself does not.

Avoid the shares.