The Investment Column: GCap feels the pain as London listeners switch off Capital

Kingston Communications; Air Partner
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Our view: Avoid

Share price: 231.75p (+1.75p)

There was more bad news for GCap Media shareholders yesterday. It came in the form of the latest Rajar listening figures. They showed that the radio group's flagship station, Capital FM, has well and truly lost its top spot in London to Chrysalis's Heart FM.

For the fourth quarter of 2006, Capital's audience share in London stood at just 4.7 per cent - equal to the record low the station reported in the third quarter. A year ago, Capital and Heart were neck and neck with audience shares of around 6 per cent. Since then Heart FM's share has risen to 7.1 per cent, giving it 1.85 million weekly listeners, while its rival's has slumped to just 1.46 million. In fact, Capital these days is in third place in London with Magic FM cementing its number two position with a share of 5.5 per cent.

The worrying thing for GCap is that this dire performance comes despite reforms at the group which culminated in a new marketing campaign that kicked off in October last year. There was some good news. Johnny Vaughan managed to halt the audience decline at Capital's breakfast show, adding 31,000 new listeners, but analysts were not convinced that the show's long-term decline has been truly reversed. Last month, Gcap extended the presenter's contract with the station for another three years. Vaughan is rumoured to collect £3m a year for the show and many in the City question whether he is worth it.

GCap had a terrible 2006. `It issued a slew of profit warnings leaving its shares close to historic lows. In January, it appointed Fru Hazlitt, former Virgin Radio boss at SMG, as managing director of its London operations.

However, as yesterday's Rajar figures show, she faces an uphill struggle to turn the business around. Trading at a whopping 60 times forward earnings, GCap shares are best avoided.

Kingston Communications

Our view: Buy

Share price: 79.5p (+1.5p)

Kingston Communications shares touched 1,579p during the dotcom boom in 2000. It is pretty safe to say that they will never get anywhere near that level again. However, in recent months the stock has enjoyed a modest rally as the Hull-based group has gone on the acquisition trail in an attempt to reduce its dependence on its traditional landline telephone business.

Yesterday, Kingston made yet another purchase. It bought Mistral, an internet service provider to small and medium sized businesses in the UK, for £19m. City analysts applauded the group's latest deal. Mistral's 5,000 public and private- sector clients are complementary to Kingston's existing Eclipse Broadband operation. The purchase is not only at a good price, but will enhance Kingston's earnings immediately.

Looking to the future, investors can expect further such acquisitions and probably bigger ones too. Some analysts yesterday suggested that Kingston might be tempted to make a bid for the AIM-listed Redstone. Such a move could cost it over £100m.

There is also the possibility that Kingston itself might be taken over. Back in November 2005, the group received a bid from Carlyle, the US private- equity firm, and although it came to nothing a fresh offer is likely.

Meanwhile, Kingston shares trade at a discount to the wider telecoms sector, which alone makes them worth buying.

Air Partner

Our view: Hold

Share price: 847.5p (+30p)

There is record demand for private jets. It comes from multinational corporations and a new class of super-wealthy individuals for whom jetting off to an exotic destination is becoming an increasingly normal way to spend the weekend. It is therefore not surprising to hear that business is booming at Air Partner, the world's biggest air charter broker.

Yesterday, the company said that its first half earnings would be significantly better than those seen in the previous year. In 2006, Air Partner made a record profit of £5.1m. This is expected to hit £5.5m in the current year.

As long as the global economy remains buoyant there is little to get in the way of the group's continued growth. Even at 22 times forward earnings, the stock is worth holding.

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