Investment Column: There's not much upside for Trinity Mirror as sales of national titles fall

Lavish spending on baby products makes Mayborn a worthwhile buy; Good time to buy Cattles after recent turbulence
Click to follow

Consumer-facing companies in a wide range of sectors are reporting trouble. It seems that the British public has suffered from a fall in confidence and is spending less.

Consumer-facing companies in a wide range of sectors are reporting trouble. It seems that the British public has suffered from a fall in confidence and is spending less.

Yesterday Trinity Mirror, the national and regional newspaper publisher, joined this chorus.

After a positive start in January and February, March and April saw a dip, said a trading update to coincide with Trinity Mirror's annual general meeting. The company pointed to a series of ills affecting the market place: the general election, rising interest rates (fear of) and property price uncertainty. It also blamed the timing of Easter, which was early this year.

The problem area remains the national newspapers, especially the UK nationals. These UK titles - the Daily Mirror, Sunday Mirror and The People - saw advertising revenue down 7 per cent in March and April, from a marginally positive January and February. The Scottish nationals - the Daily Record and the Sunday Mail - saw ad sales down 3 per cent in March and April.

Trinity Mirror insists that the difficulty is industry-wide and not related to its business specifically.

Overall, for the year so far, the nationals as a whole saw ad sales down 2.4 per cent, while its huge stable of regional papers saw a gain of 4.0 per cent. For circulation revenues, the nationals were up 1.6 per cent and the regionals 4.8 per cent higher. The company sees the rate of revenue growth slowing from the 5.8 per cent registered last year but it still "anticipates a satisfactory outcome for the year", ie meeting City expectations.

Sly Bailey, chief executive for well over two years now, has made Trinity Mirror a much more efficient and more professionally managed business. She has also pleased the City with a £250m share buyback programme. However, the company is struggling to produce a convincing growth story, leaving the impression it is being run for cash. Group turnover for 2005 and 2006 is seen as barely increasing. This is most obviously the case with the UK national papers, which continue to see a decline in copies sold. It seems the company cannot flog these at a decent price - there have been approaches in the past - nor increase their value within Trinity Mirror. Declining circulation is a problem for most national newspapers but the Mirror titles have performed particularly poorly.

The rest of the year is likely to be easier, so the shares at 627p are worth holding for now, but offer limited upside.

Lavish spending on baby products makes Mayborn a worthwhile buy

Parents are spending more and more on their babies and children, it seems from the evidence offered by Mayborn.

A trading update yesterday said the year had started well, indicating that results this year would beat the impressive 2004 figures. The company makes baby feeding products, outdoor play equipment for children (swings, climbing frames etc), while a third division does something completely different - household products including fabric dyes and wood polishes. These are not obviously great markets but the company has record of growth in its baby products division, which makes bottles, cups etc under the Tommee Pippee brand. Mayborn says that while this market is growing at 5 per cent a year, it also benefits from product innovation here.

The children's outdoor equipment business was acquired last year and should benefit from growing consumer concern over inactive children. The household division is basically mature, although it remains profitable.

Baird, the broker, forecasts 2005 pre-tax profit at £10.9m, up from £8.7m reported for 2004, which shows good growth. At 382.5p, the shares trade on a modest multiple of 11, making Mayborn a buy.

Good time to buy Cattles after recent turbulence

Shareholders in Cattles, the specialist consumer loans company, will have been disappointed in recent weeks, as the group's share price has tumbled more than 25 per cent from its eight-year highs of 420p which it hit in February. The trigger has been a combination of two factors - a shift to new international accounting standards, which has wiped about £40m off its headline pre-tax profit figure, and market fears over an ongoing consumer spending slowdown.

Neither of these reasons are disastrous. Although adopting the new accounting standards has hit the company's reported profits, this should not detract from the strong growth it has been achieving in recent months, and the 15 per cent rise in the dividend which it unveiled in March. If the company continues at its current pace, it can well justify the slightly higher ratio between its profits and market value which the new accounting standards will inflict upon it.

Although a major consumer slowdown would of course be a worry for the group, the current cooling off is bringing even more business to Cattles. As the bigger lenders tighten their lending criteria, more business will fall into the hands of Cattles, which specialises in lending to people with credit difficulties.

There is still the ongoing competition commission inquiry into doorstep lending. However, the likes of Provident Financial will be hit much harder by market intervention here. Only 10 per cent of Cattles' loan book is accounted for by this sort of business.

The fall in Cattles' share price to 304.5p is a prime buying opportunity.