City: Trafalgar dues

EITHER Trafalgar House is seriously undervalued or it is going bust. That's the only conclusion you can draw from the present pathetically low share price of 44p. Trafalgar's fall from grace has been so dramatic that the company is now worth less than the pounds 310m it raised in a rights issue a year ago. You can understand why some shareholders believe they were misled. Nobody could have anticipated the length and depth of the recession. Trafalgar must, however, have been in much more of a mess at the time of its rights issue than anyone appreciated. There can be no other explanation for the scale and speed of the degeneration.

At the time of its bid for the Davy contract engineering group, Sir Eric Parker, Trafalgar's chief executive, was quoted as saying in boastful mood: 'You do not negotiate until the full significance of the problems are out in the open.' He meant that Trafalgar fully understood what it was taking on in buying Davy.

It is now apparent that it did not - not by a long chalk. Trafalgar bought a dog. It wasn't just the Emerald North Sea platform contract that proved a far bigger headache than Trafalgar anticipated. Trafalgar has also had to pump an extra pounds 100m of working capital into Davy to deal with late payment of creditors. Surely an adequate due diligence would have revealed the need for that?

If Trafalgar pays any more than a nominal final dividend this year, it will be a surprise. It certainly cannot afford to. In any other company, Sir Eric and his chairman, Sir Nigel Broackes, would by now have walked the plank. Bob Horton at BP and Sir Roland Smith at British Aerospace paid with their jobs for a decline in City credibility that looks mild compared with what has occurred at Trafalgar House. But there is no way that either Sir Nigel or Sir Eric would go voluntarily. Both regard Trafalgar House as essentially their company and their creation. Why should they bow to the City, whose judgement they regard in any case as fundamentally wrong?

I would have liked to have spoken to Trafalgar House about its predicament, but unfortunately Sir Nigel is on holiday. So is Sir Eric, and so are the finance director and head of public relations. Clearly there is not much sense of crisis at head office. There jolly well ought to be. The share price has plunged so seriously that nothing less than a full statement setting out the company's true state of affairs and dividend intentions is going to pull it out of the mire. Sir Nigel owes that at least to all those shareholders who so naively subscribed to the rights at 190p a share.