Bottom Line: Reed hangover

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The Independent Online
THE City's downbeat response to Reed Elsevier's first full-year figures has a whiff of morning-after- the-night-before about it. There was little by way of disappointment in the results to justify the drop - caution on the outlook was more to blame.

A turning point may be here. The media bulls have had a good run; but a sector p/e rating about 40 per cent higher than the market is hardly justified by the prospects for future advertising growth.

Even if this argument is ignored there are some additional factors that make Reed a less exciting buy in the sector than, say, Reuters.

After stripping out the effect of acquisitions and currencies, Reed's turnover grew 2 per cent, barely covering inflation. Reed's burgeoning profits have come from improving the quality of its core business, not from expanding it. Reuters, on the other hand, expanded its turnover by an underlying 8 per cent.

Canny application of Reed's ample cash flow may prove the answer in due course. But if it is to ride the next favourable economic wave in Continental Europe it will have its work cut out.

The two key European publishing markets, Germany and France, are notoriously difficult areas for expansion, whether by acquisition or new launches.