The Investment Column: Advertising revival benefits DMGT

Restaurant Group is cheap, but worth a taste; Unite silences critics as it manages a maiden profit
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The Independent Online

The advertising rebound is coming along nicely, according to Daily Mail & General Trust.

A trading statement from the company yesterday, ahead of full-year results, adds to the good news on trading conditions that is flowing from the media sector: from ITV to WPP.

According to analysts at Citigroup: "Following five years of flat profits, the update confirms that DMGT will deliver what we believe to be the first year of a step-change in profitability." The broker is looking for earnings per share growth of 24 per cent, 10 per cent and 15 per cent over the coming three years.

DMGT has a strong national newspaper division, led by the Daily Mail and Mail on Sunday titles. Display advertising was up 8.5 per cent for the 11 months to the end of August at the nationals.

The company's Evening Standard paper for the London region, though, stumbled badly in the downturn. The group has carried out significant cost-cutting at the Standard, which sits in the nationals division, in a sign that it does not expect conditions to return to the boom times it enjoyed in the past.

The regional papers continue to perform healthily, with advertising up particularly in the recruitment and property areas. The regionals saw ad sales improve by 5.8 per cent for the 11-month period.

Elsewhere, the group has a series of other businesses that are nice little earners, such as its risk management information venture. DMGT also owns the majority of Euromoney, the business-to-business publisher.

DMGT tried and failed to buy The Daily Telegraph and its sister The Sunday Telegraph titles earlier this year. This would have been a transforming deal and, though the company says that it acted prudently after the bidding for the papers got beyond a reasonable price, it was a big disappointment.

DMGT shares, which edged up 0.5p to 722.5p yesterday, have motored ahead over the past 12 months. The stock trades on a forward multiple of some 16 times, which makes it pretty fully valued. Hold.

Restaurant Group is cheap, but worth a taste

After a night at the cinema or bowling alley in an out-of-town leisure park, the choice of restaurants is usually limited. So much the better for The Restaurant Group, whose Frankie & Benny's Italian-American diner chain and Chiquito's outlets have this area pretty much sewn up.

It announced record interim results yesterday, with profits up 40 per cent to £9.8m for the first half. Trading is continuing to improve, with sales up 5 per cent in the second half, building on a 3.7 per cent rise at the end of June. This is thanks mainly to Frankie & Benny's, where sales were up 6.7 per cent, and its key positioning in leisure parks.

There is a similarly captive and hungry customer base at airports, where The Restaurant Group has a number of food concessions. Sales here were up 7.9 per cent and there are further airport developments planned. With increasing air passenger numbers, and the growth of no-frills carriers that do not offer in-flight meals, airport dining is growing fast.

Trading has been more difficult in the high street, where competition is fiercer. Sales here have been flat, with Garfunkels benefiting from a rebound in tourism in London. This has offset declines in sales at Est Est Est and Caffe Uno. A slowdown in consumer spending as rising interest rates cut back the disposable income of its customer base could be damaging, however, and the forthcoming rise in the minimum wage will put further cost pressure on the group.

But at 98.5p, it is still a reasonably cheap eat at around 14 times 2004 forecasted earnings, and its dividend yields 4 per cent and rising. Worth a taste.

Unite silences critics as it manages a maiden profit

Student digs are hardly renowned as the most salubrious of locations. Which may help to explain the stockmarket's relative antipathy towards Unite, a company whose main purpose is to provide accommodation for the country's million-plus student population.

As Unite staggers towards its target of reaching profitability by 2005, it has struggled to persuade investors that it can fund its own growth. Repeated equity issues since the company floated on AIM five years ago have left the City sceptical that its business model, which relies on adding 5,000 beds per year to its portfolio, is self-financing.

Yesterday's half-year results went a long way towards soothing those fears. Not only did the group manage a maiden interim profit - £400,000 against a £3.5m loss the previous year - but it also unveiled the sort of overdraft that students can only dream of: a new seven-year £300m banking facility.

This was the third prong of its attempt to bolster its balance sheet, and follows its joint venture with Lehman Brothers to develop student flats in Sheffield and its decision to flog some assets. If Unite gets the £47.25m asking price for the portfolio of four properties, it should silence those cynics still unsure about the value of its buildings and worried about its debt. The shares, at 232.5p are a buy.

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