Warning puts Waddington in play

WADDINGTON became the latest casualty in the hard-hit packaging sector yesterday when it issued a profits warning that analysts said leaves the group vulnerable to takeover. Waddington warned that pre-tax profits for the year would be around 10 per cent lower than City expectations at pounds 31m.

The company blamed the warning on tough trading conditions, which it said were likely to continue into next year. "We don't see it as a doom- and-gloom scenario. Customers are just delaying orders," said the chief executive, Martin Buckley.

He said that while Waddington was continuing to produce innovative products, it was struggling to get the go-ahead from clients to produce them.

UK orders have slowed in pharmaceutical packaging, while the American market has been hit by the economic problems in the Far East and Latin America. In specialist printing, margins and sales have been hit by new cut-price competitors for mail order material.

The shares fell by 12.5p to 186.5p yesterday, valuing the Leeds-based packaging specialist at just pounds 190m. This raised the prospect of a predatory strike, analysts said.

The packaging sector has been the subject of frenzied bid speculation in recent weeks owing to low UK valuations. Chesapeake of the US is pursuing Field Group, while Low & Bonar is another takeover candidate after a grim trading statement hit its shares earlier this week.

Waddington shares stood at more than 300p in spring last year, but Mr Buckley said that the precipitous fall since then did not necessarily mean that the company was a bid target.

"I have received no expressions of interest and I don't think buyers would be able to wring out any more synergies than we do," said Mr Buckley. He pointed out that Waddington's diverse spread of interest might act as a deterrent.

With the shares trading on a forward multiple of just eight, they are clearly in the bargain basement category. A bid is possible, but that is a risky reason to buy the shares.