Bottom Line: Hazlewood group left to chew over options

THE stock market's disappointment at the admissions of failure yesterday from food manufacturer Hazlewood was plain to see.

Its share price tumbled by 21p, or 15 per cent, to 122p, its lowest since the grim days of September 1992.

Hazlewood had previously earnt respect among investors for stitching together a thoroughly sensible strategy to combat what seemed to be an intractable problem.

The company's solution to the difficulties, created by a combination of a narrowing profit margin and a broadly mature marketplace, was to invest.

Its ambition was to become a low-cost producer of prepared food dishes, one of the few avenues for growth in the hard- pressed food manufacturing sector.

This seemed sound enough. Unfortunately, as it frankly admitted yesterday, management messed up the execution of this sensible strategy.

Pre-tax profits of pounds 51m, down from pounds 55m, for the year to 31 March were much as expected.

But it was news of problems with the capital investment programme that prompted analysts to slash profit forecasts for the current year.

Previous estimates were for Hazlewood to make pre-tax profits of pounds 55m. After yesterday's revelations, the figure is nearer to pounds 45m.

The revised forecasts imply earnings per share of 14p and put the shares on a price/earnings ratio of only 9 - paltry, even by the undemanding standards of a sector whose average p/e is 12.

At first sight, apart from a low earnings valuation, Hazlewood also seems to have income attractions. It lifted its full-year dividend to 6.7p from 6.4p, and if the payment - which should be covered twice - is held this current year, the gross yield is nearly 7 per cent.

Chris Ball, the director responsible for the ill-fated investment programme, has fallen on his sword. He will be paid compensation for loss of office of about pounds 250,000.

But given the scale of the prepared foods upset, investors may want more changes.

They may perhaps also be receptive to a convincing predator who promises to make Hazlewood's well thought-out strategy work in practice.