Derek Pain: Profits soar but Profile stays low

Encouraging results from the specialist publisher are not enough to lift its share price while the market remains in the doldrums
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The Independent Online

Shares of Profile Media, the last recruit to the no pain, no gain portfolio, have so far failed to offer any encouragement and are bumping along at a year's low of 23.25p.

In the present climate, such a fate is, I suppose, inevitable. The stock market is still in the doldrums and the media industry in recession. Why should Profile Media avoid the red ink that has been splashed so liberally around the sector?

Profile was a beneficiary of the technology, media and telecoms boom, which sent shares into the stratosphere in those now distant days when private investors, including the then rampant army of day traders, pushed the institutions to one side and made much of the stock market running. Nowadays traditional investors are mostly sitting on the sidelines, with the battered and bewildered day traders in ragged retreat.

When its shares reached a peak of 60.75p last year, Profile was near to putting through a US deal that would have transformed the group. But as its shares weakened, the acquisition slipped tantalisingly out of reach. Although, I gather, there are still hopes that negotiations will one day be resurrected, some observers are wondering whether Profile, following the dramatic American downturn, actually had a lucky escape.

When I added the shares to the portfolio in April – my only newcomer this year – they were priced at 38.5p. Then it looked as though Profile, through its niche publishing operations, would escape the signalled media downturn.

Last week the group justified my faith with a splendid set of figures. Profits, admittedly helped by acquisitions, soared 93 per cent to £5.4m, with sales coming out 111 per cent higher at £24.1m.

And Profile made the right noises about prospects. Chairman John Webber said the current year had started well with an encouraging level of orders. Even a forecast of current year profits of £6.6m by investment house Old Mutual Securities failed to lift the shares from their floor.

Profile is one of the more adventurous portfolio constituents. Still, in many respects untested, it does not pay a dividend. Born out of the old London & Edinburgh Publishing, an obscure and unsuccessful tiddler, it was quickly transformed by Mr Webber and deputy chairman David Ellingham into a specialist publisher, distributor and provider of support services. It is deeply involved in sport, producing, for example, the Good Ski Guide and handling programmes of sporting events. The group recently acquired two specialist publishers and I suspect is on the lookout for more bolt-on deals.

Still, as I demonstrated last week with S&U, encouraging results are not going to make much impression on a share price with the stock market in such a nervous and unhappy state. True, S&U, a finance group, has edged higher to 417.5p, but the shares are still, on any traditional measure, sadly underpriced.

In the grim media environment, Profile will have its work cut out to make significant progress, although it should continue to reap rewards from acquisitions kicking in for the full year. Because of the media recession, Old Mutual's forecast has been reduced. Before last week's figures it expected the current year to realise £7.7m.

I intend to retain Profile in the no pain, no gain portfolio. Its specialist and contract publishing exercises should shelter it from the worst of the media recession. And it could take advantage of the industry's problems by capturing some useful companies at bargain basement prices. But it is clearly facing an uphill struggle, and the shares, selling on not much more than five times prospective earnings, will for the time being have to be regarded as "dead" money.

The stock market shakeout has obviously thrown up some marvellous buying opportunities. As always, it is a question of timing. It is pretty frustrating to buy a share that continues to sacrifice its value as the investing environment continues to deteriorate. Yet nobody rings a bell when prices hit rock bottom.

I suppose my reluctance to tip shares this year has been justified by the way the stock market performed even before the tragic events in New York and Washington. Although I do not feel any compulsion to rush in with a replacement for Global, the beefburger group ousted from the portfolio last week, I am considering a number of candidates. They are a mixed bunch, ranging from MacLellan, the support services group, to Woolworths, the stores chain demerged from Kingfisher.

Shares of the famed old retail group have held up remarkably well since they arrived in August. Against forecasts that they would trade at around 25p, they have been as high as 33.75p and only briefly below 30p.