Newspaper distributor Dawson slumps after more contract losses

Things are going from bad to worse for newspaper distributor Dawson Holdings, whose shares have plunged nearly 50% after it lost two more contracts.

Earlier this month Frontline and Seymour Distribution said they would not renew their deals with Dawson when they run out in April next year. Today Comag and Associated Newspapers have followed suit. Between them the two accounted for £139m in revenues last year, as Dawson distributed magazines like Vogue and newspapers such as the Daily Mail. But they have now cancelled the contracts when they expire towards the end of 2010. Dawson said its board was undertaking a review of the implications of the decisions, including its legal rights.

Analysts at Altium Securities put a trading sell on the company, saying:

"This takes the total lost attributable revenue of these four contracts to £255m, or 37% of Dawson News' 2008 revenues.

"If there is a silver lining to this cloud, it is that there is over a year and a half left to run on the two contract losses announced today. This should allow Dawson to meticulously plan and execute the transition and to ensure that the design and efficiency of the infrastructure required to service remaining contracts is well thought out.

"Dawson plans to issue a fuller update on trading and strategy around the end of this month and we believe that management will have a much clearer view of the likely financial impact of these contract losses at that time. Since other contract negotiations are still ongoing, Dawson is also likely to be in a position to discuss the impact of other potential outcomes and how it might manage other contract retention/loss scenarios. The key is that management is already planning around and acting on what has already emerged.

"Given the significant near-term uncertainty resulting from these contract losses, we believe that the stock is likely to underperform until the forthcoming trading/strategy update."

Indeed. Its shares are now down 12.25p at 13p. But every cloud has a silver lining, at least for John Menzies - up 15.75p to 60p - and Smiths News - ahead 11.25p at 81p - which have increased their business from Associated and Comag after Dawson's loss.