Alpha Airports proves a low-flyer disappoints investors

The investment column

Investors who piled into Alpha Airports at its massively over- subscribed flotation last year have been sorely disappointed. After hitting a high of 177p soon after the February sale at 140p, the shares have been on a down slope almost ever since. Yesterday they fell a further 20p to an all-time low of 109p as interim results failed to match expectations.

Pre-tax profits slipped from pounds 11.3m to pounds 11.2m in the six months to July, although Alpha has honoured its intention to pay a 1.75p half-way dividend, up from 1.6p before. Briefing the City yesterday, Paul Harrison, chief executive, convincingly argued that Alpha's results were depressed largely by several one-off items, particularly the loss of a British Airways contract at New York's JFK airport.

But he failed to convince sceptics that a short-term solution to the company's problems was in sight. The loss of the British Airways contract speaks volumes for the difficulties facing Alpha. For behind the decision by British Airways to switch alleg- iance lies one of the swiftest worldwide industrial consolidations ever seen.

This time last year there were 15 in-flight catering groups around the world. Today there are just seven, a league presided over by the recently merged forces of CaterAir, LSG and Sky Chef which undercut Alpha in the retendering process for the hand of British Airways at JFK.

The short-term effect of the industrial consolidation will unquestionably lead to further cut-price bids on contracts that come up for renewal. After that, however, the process should reverse as the suppliers use their increased market power to squeeze extra money out of the airlines. Between times, Alpha faces an uphill task in recouping the lost income at JFK.

Back home, a number of question marks hang over the UK operation, which provides the lion's share of group profits. Of most concern is the cut in the number of overseas holidays by the tour operators, many of whom, including Airtours, are customers of Alpha.

The problems of the in-flight catering division - which saw operating profits slip from pounds 9.2m to pounds 8.1m - masked the advance in Alpha's retail trading operations at airports. Operating profits there moved up smartly from pounds 4.3m to pounds 5.5m, after a revamped management beefed up ranges, leading to a higher spend per customer.

But the strength of retailing is not sufficient to recommend buying the shares. A prospective yield of 5.8 per cent, assuming dividends rise from 4.6p to 5.1p, looks attractive but the City's negative view is clearly reflected in a forward p/e of 11, assuming full-year profits rise from last year's pounds 21.4m to pounds 24m. The 25 per cent stake held by Forte, Alpha's erstwhile parent, may further overhang the share price.