Stop press: Mail group's circulation healthy. Buy

Menzies to take off in long run; Recovery a long way off for Bodycote

Investors and analysts of the media sector (all right, journalists, too) sometimes seem to obsess about the latest advertising figures, without seeing the broader picture. They were at it again yesterday, when Daily Mail & General Trust – owner of London's Evening Standard, the Mail titles and a host of regional papers – revealed advertising revenue growth has slowed down again after a bright spot last autumn, when the gloom looked like it might lift.

The national titles saw advertising grow just 2.4 per cent in the five months to 28 February; regional papers enjoyed about 3 per cent growth. These figures were worse than many forecasts, and they were accompanied by a warning that the coming weeks could be pretty dire, too. The prospect of a war on Iraq has prompted many potential advertisers to wait in case it triggers a new lurch down for the economy. In any case, who wants their ad placed next to pictures from the battle zone? And editors want the space.

But to see the bigger picture, it is circulations that investors should examine. In this area, the national titles and the Evening Standard are performing well, and the decline in regional circulations has also slowed. It is circulation growth that, in the medium term, dictates what papers can charge for advertising.

There is also good news on circulation revenues, with the Mail on Sunday, the Standard and many regionals successfully increasing their cover prices. An end to the red-top tabloid price war might also tempt the mighty Daily Mail to up its price – and a penny increase on the weekday edition would send £4m immediately to the group profit line.

DMGT has long been criticised for its low margins, but it has been investing in the group and has results to show for it. As well as circulations, other ventures in radio and exhibitions are building nicely. An advertising recovery when it comes would allow a step change in profitability. A price-earnings multiple of 12 is cheap. Long-term buy.

Menzies to take off in long run

It is four years since John Menzies sold off its newsagents to busy itself delivering newspapers and magazines rather than selling them.

The company has also branched out in to airline baggage handling and passenger services, and the strategy is starting to pay off. During an incredibly difficult 2002 for the air travel sector, Menzies' turned its aviation business from a £2.6m loss into a £3.7m profit. Growth should continue through deals with low-cost airlines.

The exposure to air travel during the war is making investors nervous. While these fears are real in the short-term – and airlines were cutting back flights to the Middle East for starters yesterday – Menzies does have a wide geographical spread. Also, UK and US operations mainly handle cargo – and cargo isn't scared of flying. Air travel will pick up again.

Meanwhile, the distribution business provides 80 per cent of group turnover. The thirst for celebrity gossip magazines seems unquenchable, the newspaper price war is coming to an end and the division is a steady, reliable business that provides Menzies with plenty of cash to comfortably cover its dividend.

Shares closed up 6.5 per cent at 270p yesterday, putting them on around nine times 2003 earnings. The current pressures on air travel might mean it will be some time before the share price takes off, but the 7 per cent dividend yield means investors will be comfortable in the waiting lounge. Buy for the long term.

Recovery a long way off for Bodycote

John Hubbard, chief executive of Bodycote International, told his shareholders yesterday how he was "more than delighted to put the new 2003 calendar on the wall". Last year was dreadful, with the group's engineering markets in freefall. Profits fell from £55.5m in 2001 to £11.2m.

Bodycote is a master of complex industrial processes such as heat treatment, metals testing and "hot isostatic pressing" – the metal equivalent of turning an Aero into a Yorkie. But its geographical spread has not insulated it from economic downturn and it has had to shut 19 factories.

That is "self help" as far as the bottom line is concerned and profits should be better this year. There has also been a promising reduction in debt to £234m, with capital expenditure kept down and cash flows markedly improved. That was why the shares leapt for joy, up 10.5p to 76p.

The stock trades on a rock bottom multiple of forecast earnings (about six) but there are good reasons. The markets that are most troublesome for Bodycote – aerospace and oil and gas – are not likely to improve any time soon, and the car industry, robust so far, could decline. Bodycote likely to recover later than other cyclical plays, so even economic optimists should avoid.