Haynes has plenty left in the tank

Advisers often recommend large companies to private investors; they must be successful to have grown so big. The financial pages are crowded with developments at our biggest companies, though it's not always good news: ask bank shareholders.

For investors who read annual reports, telephone financial directors, and evaluate a company's products, big companies are problematic precisely because of their size and popularity.

Take HSBC, which I'm picking on because I have its accounts. If your postman's a bit flabby, order one HSBC annual report a day for six months and he'll soon be in shape. It's as big as a telephone directory

and although picking it up is hard enough, understanding it is harder.

You can call the company for guidance, but you'll probably get no further than a public relations executive. I think it's best to avoid companies that are too big to analyse, and where other investors - the large funds that dominate the market - know more than us, because they have exclusive access to the managers who actually run the business.

Fortunately, that leaves the majority of companies that are so small in comparison they might as well not exist to, say, a pension fund.

Motor manuals

Haynes Publishing (HYNS) is small, with a market value of £14 million, but it has a big name. In this country, it's synonymous with motor manuals although over half of its sales are from the US, where it's also well known though not as ubiquitous. In recent years Haynes has gained headlines by extending its range of manuals into other areas of life that require demystifying: sex, women (a step-by-step guide for men), teenagers, and home extensions, for example.

If you check the popular investment websites, you'll find no analysts' forecasts. As you'd expect from a successful brand, Haynes has a long history of profitability, but the City and the media that feeds off it are not very interested.

That's bad for existing shareholders, the biggest by far being the Haynes family, who'd appreciate more buzz. Its price has fallen from its 2007 high of 350p to below 200p. An impressive run between 2002 and 2005 faltered as profits declined. The sell-off intensified when Haynes cut its interim dividend half a penny to five pence in January this year, preferring to conserve cash for growth.

Temporary tribulations reported by Haynes include the decline of the US economy, which magnifies the effect of falling revenues earned there. It's puzzling that Haynes should suffer when hard-up consumers might turn to DIY.

John Haynes OBE, who founded the company in 1960, admits that there may be more to declining sales than economic cycles. As cars become more complex and more reliable, their owners are less inclined to get their hands dirty. He says that it needn't be that way.

"Open the bonnet of a modern car and you see a mass of plastic. Yes, sure, you've got electronics, but basically everything's the same. You've got pistons going up and down and spark plugs sparking. You can still do 95% yourself."

Haynes' struggle to increase sales explains its attempts to diversify - successfully into lifestyle manuals and unsuccessfully into historical publishing, a division it has sold. It also explains why Haynes held back some of January's dividend.

Strong and weak

In February, it bought Vivid for £6 million. Vivid is strong, where Haynes is weak. It's the leading provider of technical information to independent European workshops. Haynes serves amateurs, Vivid targets professionals. Haynes prints manuals, Vivid is on the internet. So, Haynes will bring Vivid to professional mechanics in its English speaking markets. If we won't fix our cars, then a mechanic will, and Haynes wants to provide the blueprints.

Vivid is profitable and won't leave Haynes heavily indebted, so it doesn't look too risky, yet investors are hyper-cautious, valuing Haynes at only seven times average earnings over the past nine years.

They may be right in the short term. When Haynes announces its results on 28 August profits will probably be lower, and we don't know if Haynes will match the generous dividend it paid then. In time I think Haynes will surprise its doubters.

For a slightly different insight into Haynes, why not watch iBall TV's take on the publisher?