Stay tuned to Capital

No whines about Majestic; Mice worth chasing
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Capital Radio is the big daddy of the commercial radio sector. From its origins in London, it now has stations across the country. Its size, pure focus on radio and clean shareholder list makes it both the obvious player to lead consolidation in the industry but also the obvious takeover target.

Capital Radio is the big daddy of the commercial radio sector. From its origins in London, it now has stations across the country. Its size, pure focus on radio and clean shareholder list makes it both the obvious player to lead consolidation in the industry but also the obvious takeover target.

The Communications Bill, which should be published today, will free the sector to pursue consolidation and make a US invasion possible. Viacom and Clear Channel are the likely US predators and, over the weekend, the latter made clear that it wanted to buy more than one British operator with Capital high on its list.

Though the comments sent Capital shares up 7 per cent to 495p yesterday, Clear Channel (and probably Viacom) will not move until the Bill becomes law, which could take up to a year, and any takeover would be done on a friendly basis. No approaches have been made.

It is uncertain that we have reached the bottom of the cycle with Capital. Last week's full-year results showed a near-halving of profits, to the end of September, while current trading is down some 8 per cent.

In addition, the most recent audience listening statistics showed a sharp fall, while a large number of the audience are expected to defect when Chris Tarrant – host of the morning show on the flagship Capital FM station – leaves at the end of next year.

Capital's options for expansion are limited in London, on competition grounds, because it already has a huge share of this market. Elsewhere, its cash firepower is some £70m, so it couldn't manage a large cash deal and Capital paper may not prove to be very attractive. On a forward multiple of 22, some of the upside from a bid or a trading recovery is already in the price. Not worth buying at this price but existing listeners should stay tuned.

No whines about Majestic

Crack open the bubbly! It's been another good six months for Majestic Wine. Us sophisticated Brits just can't get enough of the red and white stuff, apparently, and sales are stronger than ever at the wine warehouse group.

Interim figures yesterday showed that Majestic had nosed ahead of a market that is growing at about 8 per cent a year with an 11 per cent rise in like-for-like sales. The reason? Nearly 300,000 more wine drinkers (a 9 per cent increase) have realised they are better off buying a case from one of Majestic's diploma-qualified sales team than one of their high street rivals (you have to buy 12 bottles at a time at Majestic).

Tim How, the chief executive, has lost little time in prospering from an array of problems at other off-licences. Although the market remains highly fragmented, his group's specialised approach to wine retailing has paid off with pre-tax profits up 66 per cent to £2.6m in the six months to the end of September. The shares popped 8.5p higher to 492.5p.

The biggest risk for the group, which recently extended its kingdom across the Channel into France, remains the supermarkets. The tightly held shares (the chairman and his family own more than 60 per cent) have had a good run and look fully valued on a multiple of 15 times. Hold.

Mice worth chasing

Mice Group describes itself as an "international marketing support services group", which is a grand way of saying it develops exhibition stands around the world for companies such as Jaguar and Hewlett-Packard.

Like many media related companies it has seen its shares slump since the boom two years ago but half-year results yesterday showed a 71 per cent rise in pre-tax profits to £4.7m, helped by a property disposal. But even profits from continuing operations edged up from £3.4m to £3.6m, which is not bad in the present environment. The shares duly ticked up 2.5p to 51.5p.

Mice is expanding in the US though it is costing it an arm and a leg to do so. Although the US division recorded losses of more than £1m last year Mice is saying it will be profitable in 12 months.

Mice claims it is less exposed to a downturn as clients turn to below-the-line activities such as exhibitions and cut expensive TV campaigns instead. This may be wishful thinking but on Collins Stewart's full-year profits forecast of £7m the shares trade on an undemanding forward price-earnings ratio of 10. Worth a look, though the rising US exposure and margin pressure from powerful clients could make the group vulnerable.

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