Companies: NWS   

Magazine and newspaper distributor Smiths News has made headlines by warning sales for the current year will fall ‘modestly short’ of those achieved last year.

The downbeat news accompanied robust results for the year to August from Smiths, which grew underlying profit before tax 4.8% to £32.5m and earnings by 3.6% to 14.5p. Following a year of strong cash flow, enabling a significant reduction in net debt to £44m, the total dividend was lifted by 5% to 6.7p.

Chief executive Mark Cashmore characterised this as ‘another year of progress’, culminating in a major contract gain from News International, running through until 2014 and set to boost market share from 24% to 39% by July.

Nevertheless, Cashmore concedes the company is feeling the pinch. ‘This year, things are going to get tough. Sales were down by 2% through the months of July, August and September, and realistically we expect this to continue’, he warned.

On the plus side, given the company’s cash-positive position, Cashmore says Smiths will be looking to diversify into different markets when the right opportunity arises, although he wouldn’t be drawn on specifics.

With the shares having fallen another 73p from the level at which we recently recommended cutting losses, Smiths News unsurprisingly trades on a lowly 2009 multiple of 4.5 times – based on downgraded forecast earnings of 12.9p – where it at least now offers a bumper yield of 11.5%. Income investors might be attracted in, but given recent price momentum and worsening market conditions, the shares are best avoided short term.

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Smiths News	LSE	£138.1m	75.50p	0.50p
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