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Investment: Harsh verdict on Brake

Edited Peter Thal Larsen
Wednesday 23 September 1998 23:02 BST
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EXECUTIVES AT Brake Brothers could be forgiven for thinking the market dealt somewhat harshly with the food distribution company yesterday. After what was interpreted as a profit warning, the share price plunged 111p to 635.5p - a 15 per cent drop.

True, chairman Frank Brake had sounded downbeat as he unveiled the company's first-half results. He said the UK catering market was temporarily slowing down because of lower confidence in the economy. The second half had started slow, he said, adding: "Some improvement is being experienced in September but we are cautious, although not pessimistic, with regard to the outlook for the year as a whole."

But it is not clear this really amounts to a profits warning. Pre-tax profits grew by 27 per cent to pounds 13.7m in the first half. Even if the second half is slower, Brake is still growing nicely.

Certainly, the company has suffered some blows since its shares peaked at more than pounds 10 earlier this year. One problem stemmed from trouble with new computer systems. Teething troubles had knock-on effects in the food services distribution operation, causing a one-off hit of pounds 2m for extra labour. Bad weather and dwindling consumer confidence meant fewer people ate out.

But there's no reason to assume this will last forever. Puritan Maid, the multi-temperature distribution service, is no longer plagued by giant losses, while Brake's French division is thriving.

The shares may have been overvalued. But at yesterday's close they trade on an undemanding 16 times forecast full-year earnings. A long-term hold.

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