Burdened with £62.9m of borrowings, Abacus, the bombed-out European-wide electronic components distributor, remains a fairly unattractive investment at present.

Profits for the half to March reduced from £6.8m to £4.5m, before tax, exceptional items and amortisation, on a 6.4% drop in turnover to £138m. To ensure a dividend cover of at least two times, the dividend was cut substantially from 3.6p to 1.8p per share.

Over the past year, Abacus has experienced ‘static demand patterns’ across tough European markets and the upturn that had been forecast for the second half of this year is now not expected to materialise. Against this challenging backdrop, it is to the company’s credit that it has continued to trade profitably in all its core markets, which stretch across 11 countries in all.

Abacus’ euro-dominated debt has also borne the brunt of the strength of the euro against sterling, and would have been £3.4m lower if translated into pounds at the same exchange rate as at 30 September 2007. Chief executive Martin Kent says gross margins of 25% compare well to competitors, who typically average returns of around 17%, and expects cash generation to improve in the current half year, as inventory levels reduce.

Following the interim figures, house broker Hoare Govett downgraded its target price from 120p to 102p and culled its profit estimate from £13.5m to £10.5m – earnings estimates were reduced to 9.6p  from 12.4p. Though the group remains profitable and cash-generative, given market conditions and significant gearing levels, the prospective multiple of 4.1 times is unsurprising. Avoid for now.

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