The Investment Column: Johnston Press remains gloomy on advertising outlook

Raymarine; Mears
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The Independent Online

Our view: Hold

Current price: 258p (+1.75p)

If, as widely believed, newspaper advertising is a good barometer of the strength of the economy then the forecast remains chilly.

Johnston Press, one of the country's leading regional newspaper publishers with titles such as the Yorkshire Post, is witnessing an improvement in business but there are doubts whether it is sustainable. The worry is that confidence is fragile and sentiment can turn on a sixpence. For evidence look no further than what has been happening in Ireland in the past few months.

It accounts for no more than 6 per cent of total business but shows how quickly business can change. For the first half of the year advertising revenue was 10 per cent up on a year ago. Then the over-heated Dublin housing market started to cool rapidly, property advertising slumped and overall revenue is now down 1.2 per cent, according to a pre-closing trading update yesterday.

Across the group advertising revenue rose by 0.2 per cent in the five months to the end of November reversing the 1.5 per cent fall in the first six months. Underlying employment ads are down 1.8 per cent compared with a 4.3 per cent fall in the first half with UK display advertising remaining weak. The only significant improvement came from digital advertising which advanced by an impressive 35 per cent thanks to heavy investment in systems and innovations such as iAnnounce, a dedications site.

Johnston, which owns 18 dailies and nearly 300 weekly newspapers and operates around 300 web sites, says the "turmoil in world financial markets" leaves it cautious about prospects for 2008 although it will draw some comfort from the winding down of recent heavy investment in new plants.

Analysts believe advertising will, at best, increase by 2 per cent but could be flat. Despite the fall from 490p to 258p it still looks too early to chase the shares.

Raymarine

Our View: Buy

Current price: 265p (-2.25p)

Has the credit crunch started to hit the really rich? To find out, go along to the Boat Show in London in January and speak to makers of those floating gin palaces. They will tell you order books are full, some at record levels.

One company happy to be towed along with them is Raymarine. It makes a range of electronic marine gear such as navigation equipment and rich men's toys such as fishfinders and underwater cameras. Raymarine shares got a ducking earlier this year because of a slowdown in the United States. The fall was probably overdone. The part of the business which suffered was supplying marine gear into the retail trade for small boat owners who were suddenly finding problems meeting their mortgage repayments. The top end of the trade, selling equipment to makers of new yachts, has remained buoyant.

Even so, the US will still finish the year flat. Despite this, Raymarine yesterday confirmed that 2007 earnings will be in line with estimates and it remains positive about prospects for 2008. Since floating in 2004 Raymarine has seen sales advance from 106m to around 140m as it continues to benefit from the international boom in yachting.

Raymarine is becoming less dependent on the US, gaining from orders around the world, particularly from centres such as Dubai. As well as a strong pipeline of new products, the company is mopping up a number of its distributors. These are being acquired at attractive prices which, typically, can add between 500,000 and 1m to the bottom line.

The company should make 28m in the current year rising to 30m next year leaving the shares on an undemanding 11 times earnings. Raymarine serves a profitable niche market although uncertainties persist. Even so, the shares look set for fair weather.

Mears

Our view: Hold

Current price: 255p (-6p)

Mears, which repairs council houses and carries out other essential maintenance work for town halls around the country, has consistently delivered the goods since floating on AIM in 1996. But despite the absence of any significant trading problems the shares have lost their way, possibly because of market concern over the long-term intentions of founder chairman Bob Holt. He sold the bulk of his shares and handed over the reins to a new chief executive.

But after briefly giving up the role, Holt returned to the post last year and is now firmly back in control. He recently beefed up the board with two deputy chairman and a non-executive director.

To underline his commitment he has agreed an option package although he will not be in the money until the shares top 320p against 255p now so he has plenty of work ahead. Mears has bolted on a division offering care services to the elderly and continues to pick up long term maintenance contracts bolstering an order book in excess of 1.2bn.

The company confirmed to analysts that trading for the current year is in line with estimates suggesting an outcome of close to 17m, up 5m. The shares do not look expensive.

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