Company bumf dip hits St Ives

St Ives; Diagonal; Rugby Estates

St Ives, the mid-cap printing group, has found itself stuck between a rock and a hardback since its August year-end.

Demand for corporate bumf – where printing for investment banks and law firms is one of the group's main money-spinners – has fallen off a cliff as business deals have all but dried up. The events of 11 September sent a fragile advertising industry into a tailspin, hitting St Ives's magazine operations. And, to cap it all, competition has heightened in the market for "web offset" – high speed, medium print run – publications, which is hammering margins.

Miles Emley, the chairman, said trading conditions are harder than they have been since the early Nineties. He warned yesterday of "extreme uncertainty" in the short term and saw no sign of progress even in the medium term.

Results for the financial year just ended, at least, were in line with expectations. Pre-tax profit for the 53 weeks to 3 August fell 10 per cent from a year ago, to £62m. Sales rose a little more than 5 per cent to £498m.

There was progress at the group's US operations, which account for 30 per cent of sales, and at its book division, where it has shared in the magic of Harry Potter and Margaret Atwood's Booker-winning The Blind Assassin. But it failed to counter market concern that this cyclical stock had yet to plumb the bottom.

The St Ives's management team comes highly rated and there is a widespread belief in its ability to ride out the current slump. The breadth of the group's business, unique on the UK stock market, is a further plus point.

St Ives is reviewing all of its operations and will announce the results shortly. For now, its strategy remains to concentrate on the most specialised markets, where there is less price-driven competition. In short, this means printing more magazines to a very tight timetable, such as its weekly run for The Economist, and steering clear of clothing catalogues and travel brochures.

Its house broker ABN Amro slashed 2002 profit forecasts, pre-goodwill and asset sales, by 31 per cent, to £45.1m and expects earnings per share of 29.9p. The shares, down 12.5p to 345p, should begin to pick up even before analysts spot the bottom of the cycle. On a forward price-earnings ratio of 11.5, they are worth watching.

Diagonal

IT IS still grim in the technology sector. Diagonal said yesterday its "secure networks division, in particular the network infrastructure element of the business, has recently experienced a significantly reduced level of demand".

So far, so unsurprising. The division re-sells hardware from Cisco, among others, to UK businesses which are well known to be retrenching their information technology spending. Sales and margins are under pressure at Diagonal, so group profits, before goodwill, will be flat this year, it warned.

There were also hints of a slowdown in Diagonal's high-margin consultancy unit, which installs business planning software produced by the German giant SAP. Two big contracts have been "deferred" including, it is believed, one particularly large project in Europe.

Diagonal's share price has gone the way of all techs and, after falling another 21p to 80p yesterday, now languishes some 93 per cent below its peak. Analysts are forecasting £7.5m of profits this year, putting the stock on 13 times earnings, but it is far from clear that there will be any profits growth next year either. With no sign of an upturn in IT spending or any clear picture of what post-bubble demand and margins will look like, Diagonal should be avoided.

The statement yesterday – which talked of more slippage in sales since the start of autumn – also raised fears for IT companies operating in overlapping areas. Dimension Data, the South African company which issued a profit warning of its own in July, could come under further pressure, since it gets around 12 per cent of its revenues from the UK. Axon Group, another re-seller of SAP software, has already missed its numbers once and remains vulnerable. Investors should also steer clear of other hardware re-sellers such as Morse and Computacenter.

Rugby Estates

The Irish entrepreneur Jack Petchey, whose investment vehicle Trefick has built up a 16 per cent stake in the tiny London-focused property group Rugby Estates, has a terrific record in turning a profit on his holdings. But he has been buying all year and investors ought not follow him now that Rugby's shares are at record highs.

The stock rose 4.5p to 249.5p yesterday after solid interim results showing net asset value up around 20 per cent on a year ago. A tight management has turned up some nifty deals on brownfield sites in the M4 corridor but, for all its skill in concentrating on the least glitzy West End properties, Rugby is unlikely to entirely escape a downturn in London.

With the shares on a market average 38 per cent discount to the net asset value, bargain hunters are too late.