Abbott Mead untarnished

THE INVESTMENT COLUMN

The trials of Cordiant and the muted performance of Martin Sorrell's WPP have tended to give the advertising sector something of a bad name on the stock market.

Shareholders can therefore be thankful that Abbott Mead Vickers, run by the 18-year partnership of David Abbott and Peter Mead, maintains its reputation for good management and consistent performance.

Yesterday's half-year pre-tax profits of pounds 3.5m, up from pounds 2.3m last time, are further proof that a commitment to growing the underlying business, matched by a conservative strategy of buying only into related sectors such as public relations and contract publishing, can pay dividends.

While other agencies have only just survived the recession by laying off swathes of staff - and still seen earnings slump - Abbott Mead has continued to deliver steady growth without the need for redundancies. In terms of billings, the main ad agency has quietly grown from number 16 in the UK market to number two over the past 10 years.

Since the 1992 recession, margins have grown steadily, rising from 12.1 per cent of turnover in 1993 to 15.6 per cent in 1994, and are in line to hit 20 per cent in 1995. Doubtless, the core advertising business will turn sour again when the economy next goes into recession. But the downside will be capped, in Abbott Mead's case, by the fact that 50 per cent of the business will be derived from non-advertising work by next year.

Although the interims were in line with forecasts, the shares rose 9p to 464p to a new high yesterday, putting them on a forward rating of 23 times, assuming full-year profits reach pounds 10.4m. They look fully valued.