Investment: Slowing sales adds to Northern Foods' woes

IT HAS been a tough few days for Britain's food companies. On Monday, Unigate warned of a pause in growth this year as consumers tighten their belts. And yesterday Northern Foods chipped in with half-year profits down 4 per cent to pounds 40.2m and gloomy comments about slowing sales growth. It is a now familiar story. The first quarter was relatively strong, but sales fell away in the following three months with no recovery in October or early November.

Northern's problems are hardly surprising. The profits collapse at Marks & Spencer, which accounts for one-third of sales, has clearly had a knock- on effect. Consumers are also showing reluctance to splash out on Northern's more upmarket ready made meals.

All of this has been reflected in the share price, which has fallen substantially from the 236p peak a couple of months after the Express Dairies de-merger in the spring. Yesterday the stock shed another 12.5p to 155p.

The best news for Northern is that at these levels the downside is limited. Northern's capital expenditure for the full year will be pounds 93m against depreciation of pounds 48m. It has already made two acquisitions this year in Cavaghan & Gray and Paynes and more in-fill deals can be expected. And with M&S adding 15 per cent more space to its food halls over the next three years, Northern should benefit.

The bad news is that with price inflation virtually non-existent and competition tough, the shares are unlikely to make much progress before Christmas. On full-year forecasts of pounds 98m the shares trade on an undemanding forward multiple of 12. Hold.