The Investment Column: Hold on to Johnston Press for yet more growth

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Revenues for recruitment advertisements at Johnston Press's newspapers were down 24 per cent in the second half of last year. That's pretty painful.

Recruitment and other classified advertising is a key source of revenue for the regional titles that Johnston owns. Ad revenues were 6 per cent lower overall in the second half and 4 per cent down for the year as a whole.

Other regional publishers have revealed similar falls. Critics of the industry have suggested that what we are seeing is a structural shift away from classified advertising in regional newspapers to the internet. Oh no we're not, says the chief executive, Tim Bowdler.

Mr Bowdler argues that we are seeing a cyclical downturn, which has manifested itself in less public sector and private sector recruitment. The property market has also, of course, come off the boil.

He makes a convincing case that the kind of jobs advertised in his papers - cleaners, secretarial, clerical - are sought by people who want to work locally. And for that they will always turn to their local paper - or its website.

The poor trading conditions in the industry meant Johnston Press saw no top-line or bottom-line growth last year.

On the positive side, remember this is an ambitious and well-run company. It should continue to benefit from opportunities to buy more papers, as the industry consolidates, and improve the margins of those it buys. Its private deal to purchase The Scotsman recently, for £160m, without letting it go to auction, was canny. At 467p, its stock is a hold.


Given the amount of money the government is spending on the Private Finance Initiative it is no surprise to see Carillion doing well. Yesterday, the construction group, which has dedicated half its business to public sector work, announced a 15 per cent rise in profits to £55.5m, before exceptional items, and recommended a 7 per cent rise in its dividend to 8p a share.

The company's order book rose to £7bn from £5bn in 2004, but when one adds the contribution of the recently acquired Mowlem it stands closer to £9bn. Carillion completed the £313m takeover two weeks ago. How it copes with the integration of the business will be key to the company's performance.

The enlarged group is one of the biggest infrastructure services players in the UK - as well as building hospital and schools it also manages the facilitiesfor a fee from the Government. The tie-up with Mowlem is forecast to deliver substantial cost savings. City analysts expect them to run at £10m per annum by the end of 2006, rising to £15m in the following year. This should boost earnings substantially - possibly by up to 12 per cent in the first full year of the combined company's existence.

There is no reason to doubt Carillion's ability to extract these savings. The group's management has a great track record on this front, having managed £30m of cost reductions in the past two years. As forthe outlook, Carillion looks poised to enjoy strong growth in the public sector. Particularly exciting are two projects in which Mowlem is the preferred bidder - the £7bn Allenby Connaught scheme and the £1.1bn project to provide a new Permanent Joint Headquarters for the Ministry of Defence.

At yesterday's closing price of 327p, Carillion trades at a slight discount to its peers. This is unwarranted, especially given the prospects for earnings upgrades at the company. Buy.

Restaurant Group

The Restaurant Group has a hectic year behind it, during which it sold off its Caffé Uno and Est Est Est restaurants and gobbled up the Blubeckers chain of country gastropubs. That leaves it to focus on its 144-strong chain of Frankie & Benny's American-themed restaurants and its 34 Chiquitos Mexican-style grills, both of which are expanding rapidly.

The group sold its two Italian-style chains because it found the high-street rivalry between pizza and pasta places hard going. It makes more than 90 per cent of its sales in out-of-town retail and leisure park venues as well as airports.

The only retained brand that had a tough year was Garfunkel's, which gets about two-thirds of its business from central London where trade slowed sharply after last summer's bombings. The group's chief executive, Andrew Page, said there were no plans to expand the chain but stressed the group would hold on to it as the brand is key to its airports business.

Underlying pre-tax profits jumped 21 per cent to £29.5m last year, while like-for-like sales rose 4 per cent in the year so far. Going forward, the group is much better placed for further growth than many of its high-street peers and has a higher dividend yield. Buy.