Menzies warns on first half

The transformation of John Menzies from newspapers and magazines to aviation becomes ever more apparent. First half results will be depressed but the full year outlook is better.

Morningstar.co.uk Editors 28 June, 2007 | 7:58AM
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Menzies Aviation, which provides support such as ground handling services for major airlines and airports, has had a good start to the year according to a trading statement ahead of the half year end this weekend.

Significant new contracts have offset lower than expected cargo volumes. Unfortunately, start up costs on the new contracts will affect the first half results, with the benefits not showing up until the second half.

Mensies bought privately owned Universal Air Cargo, an international wholesale freight forwarder operating at 11 locations in Australasia and the US, in April. The business is being merged into Menzies Aviation's AMI freight wholesale business.

More acquisitions are being sought on the aviation side and it is surely only a matter of time before this expanding business becomes the larger half. It will probably happen this year.

Meanwhile the newspaper and magazine distribution service for which Menzies is better known ‘continues to operate in an evolving marketplace’.

Well, that’s one way of putting it. Magazine volumes are down in the second quarter on last year and while that was expected, Menzies is having to cut costs accordingly.

Undeterred, Menzies has completed the acquisition of Leadenhall News, and is waiting for regulatory approval to buy Grays Newsagents, a wholesaler of newspapers in the York area.

Menzies is making sensible acquisitions of manageable size that can be easily merged into existing operations in both divisions. However, while aviation is a growing business the news side is running to stand still. The only good aspect is that weaker smaller players can be bought out.

The company says it believes ‘further progress’ will be made in the second half and that full year trading will be in line with its expectations. However, it is clear that shareholders should brace themselves for a setback when interim results are released on 4 September.

The shares have recovered well from a low of 425p last September to peak at 584p in May and are currently around 550p. The forward PE of 12 and the attractive prospective dividend of 4% reflect concerns over the news side.

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