Bottom Line: Radio sector is still a good play

LOCAL radio shares have zoomed ahead and some of the prices seem fancy. Capital Radio, for instance, much the biggest company in the sector, is trading on a prospective multiple to September 1994 of about 27 times earnings. The sector has outperformed the market by more than 70 per cent over the past year.

Yet they remain an interesting, if speculative, play. Share price rises thus far have been driven by a stronger than expected recovery in advertising revenues. That is continuing and there is evidence that analysts have been over-cautious about earnings prospects, so the companies may not be as expensive as they look.

Radio also appears to be taking a bigger slice of the advertising cake. The industry has begun to get its act together by making it easier for advertisers to exploit the medium, and the potential for improvement remains significant.

The sector has also been subject to the restrictive ownership rules that have dogged ITV companies.

This restriction may be lifted as a result of the Government's review of cross-media ownership. In that case, investors should prepare for the same flurry of rationalisations and silly share prices seen among television companies in recent weeks.