Investment: Alpha runs into more trouble

MOHAMED AL FAYED and fellow shareholders in Alpha Airports should fasten their seat belts and prepare for a turbulent ride. The airport services group, where Harrods holds a 27.8 per cent stake, is starting to resemble the hapless crew of the Airplane movies. Crises are just piling up. No sooner had Alpha stopped blushing about the failure to find a buyer for its duty-free shops than a 7.5 drop in interim profits came along.

Most of Alpha's businesses are in poor shape. Take the catering operations, which make in-flight meals for British Airways and Air Canada. True, the first half saw a 9.6 per cent advance in profits. But half of this increase came in short-haul flights which deliver measly returns.

More worryingly, growth is set to slow down in the second half, while costs keep rising. It's a similar story for the ground handling unit, which cleans airports and moves baggage. Here, the Asian crisis and the opening of a new terminal in New York reduced volumes.

As for the duty-free shops, Alpha is stuck with 73 per cent of the UK airport market outside London. These shops will be the worst hit by the scrapping of tax-free shopping in the EU next year, as a large chunk of their customers travel within Europe.

The good things about Alpha are its double-digit dividend yield and the undervaluation of its shares. Since this column said "sell" six weeks ago, they have lost more than a third of their value, including a 2.5p drop to 44.5p yesterday. They now trade on a multiple of around five times 1998 earnings of pounds 24m. But given the state of the business, they should still be avoided.