Emap offers little attraction

Viridian; Dicom
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Emap's half-year figures yesterday contained no new horrors. That's quite an achievement for a media company these days.

Turnover at the magazines-to-radio group edged up 3 per cent to £456m, while pre-tax profit, before exceptionals, was 8 per cent higher at £55m. The company said the second half of the year would remain difficult but it still expected growth.

There was, of course, the little matter of a £127m loss from the sale of Emap USA, in August, which pushed the bottom line £100m into the red.

The US business, acquired for $1.5bn (£1bn) in 1999, had proved a disaster for the company. Although Emap only managed to get $500m on its disposal, there must be considerable relief the group managed to get shot of it before 11 September.

Reassuringly, Emap appears to have learnt its lesson and it now says it will only look at small bolt-on deals in future.

Emap is helped by having only 45 per cent of revenues directly dependent on advertising. That means it is less exposed than many other media players to the current savage downturn in advertising.

And Emap argues consumer magazine circulation and ad revenues, which make up 65 per cent of turnover, are resilient in a downturn. It publishes titles such as FHM, the lads' mag, and Heat, the celebrity gossip rag – at a couple of quid an issue, they are too small to be worth cutting if household budgets get squeezed.

For the six months to 30 September, consumer magazine circulation revenues grew 12 per cent, while advertising sales in this division were 5 per cent up on the period last year.

Emap stock has rallied from a year low of 480p in September, closing yesterday up 10p at 750p. Earnings for the full year are forecast at about 41p a share, leaving the stock on a forward multiple of 18 times. With the economy and advertising still heading south, that seems high enough for now.


Things have gone a bit wrong at Viridian, the old Northern Ireland Electricity. The company has been expanding its business into areas out of reach of the regulator, but ventures in software and telecoms have been characterised by big losses or a series of misjudgments. The main disappointment with interim results yesterday was that margins have collapsed at its Sx3 division as desperate rivals in the software industry slash prices to attract custom.

Viridian is, belatedly, cutting costs at Sx3 where, until a few weeks ago, it had been hatching ambitious expansion plans. But it looks like the only profit for the division is coming from sales to other businesses in the Viridian group, while profits from local authorities, to which Sx3 sells products for automating tax and benefit administration, remain under serious pressure. In the six months to 30 September, Sx3 made just £1m, down from £4.7m a year ago.

Overall, group turnover rose 21 per cent to £305m, but operating profit fell 4 per cent, even before accounting adjustments and goodwill write-offs.

Viridian is making a promising investment in new power plants in the Republic of Ireland, where the first at Huntsdown will be up and running by next June. There is expected to be a shortage of generating capacity in the Republic and the authorities there have sanctioned a big rise in electricity prices to attract new capacity, but it will be a while before the benefits of the giant investment begin to feed through.

There is no hope of predicting Viridian's future earnings until the conclusion of its tortuous regulatory review, due within days. This may well be harsh, since the regulator was thwarted last time round in introducing swingeing price cuts at the group's main Northern Ireland Electricity business. The review could well end up in the courts again and it is almost certain that dividend growth will have to slow from its current 10 per cent per annum.

That will further reduce the attractions of the shares, down 18p to 547.5p yesterday, which should be sold.


Attention all personnel in data entry: you may soon be replaced by a computer. Dicom's scanning software reads paper documents and turns them into computer files, and the company is growing at 15 per cent a year, despite the slump in IT spending. Companies reckon they can cut costs and boost efficiency with Dicom's products.

Sales in the three months to 30 September were up £5.1m to £32.8m, and profits were up 15 per cent on the same period a year ago, to £1.2m. The company generates cash, has negligible debt and has seen no slowdown in the US, even after the events of 11 September.

The house broker, Investec Henderson Crosthwaite, reckons Dicom is on course for £10.9m profit this year, even allowing for a weakening economy. That puts the shares, up 22.5p to 432.5p, on 12 times underlying earnings. They are cheap and worth tucking away.