The heat is on to sell Emap

Wait for returns at Brit to improve; No need to run for pricey Corin
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The Independent Online

What are the fastest growing magazines in the Emap stable? There is heat, for sure, along with another celebrity gossip title Closer. There is Empire, Mojo and Max Power. And, believe it or not, there is Angling Times. These consumer mags have again been the star performers in this media conglomerate, which posted an interim sales update yesterday. With circulations rising and consumer spending high enough still to make it worth advertising in them, Emap has seen a 6 per cent rise in revenues at the division.

But there are signs that, perhaps, the best is over. The company complains that advertising "lead times", how far in advance advertisers decide whether to take space, have been getting shorter. At the very least, the future is more uncertain than for a while.

Also disappointing to hear was that a number of new magazine launches have slipped into next year. Apparently some projects need tweaking. Spending on these developments will fall to £19m in the current year, rather than rise to £23m as originally planned. This led to the charge that Emap was raising its profit guidance for the year at the expense of long-term investment. The shares were the worst performers in the FTSE 100 yesterday.

The broadcasting businesses are also looking less enticing. Radio stations such as Kiss and Magic have grown their market shares and advertising revenues have grown accordingly, but growth looks like slowing against tougher comparatives. And there is also much tougher competition now for its music video channels on digital television. Over the summer, revenues from channels including Smash! Hits and The Box were down 10 per cent.

And all the while there is the nagging doubt over Emap's radio strategy, which is that it wants to be a consolidator, only the prices of radio companies right now are "hyper inflated" by consolidation speculation. What that might mean in terms of its next move is anyone's guess and it also leaves the suspicion it believes its own radio interests, which account for about a quarter of its market capitalisation, are too highly valued. Sell.

Wait for returns at Brit to improve

Shareholders in Brit Insurance handed over £350m in two rights issues that helped the company regain its feet after the World Trade Centre attacks and take advantage of rising premium rates. Yesterday they were asking what they had to show for their investment.

On the surface, times look like they have never been better for Brit, as it turned a £4.3m interim loss into a £31m profit.

There have been relatively few claims, so payouts are running at just 89 per cent of premium income. Brit was also confident about the continuing strength of premiums, saying that while the rate of growth is slowing, they are plateauing at high levels. It expects this to continue through to 2005.

Look under the bonnet, though, and Brit is not delivering the returns it should be. Its return on equity was only 5 per cent in the first half, and will only break into the mid-teens for the full year. Compare this with its rival Amlin, which has delivered more than 20 per cent this year, and is expected to deliver 25 per cent next year.

Brit appears to have raised too much capital, making the premium growth needed to make a good return on its capital unfeasibly high.

At 71.75p, it is trading at 1.2 times its net assets, making it cheap in the sector. Don't let go of Brit yet, since it is financially robust and the new management team may get the capital/returns balance right. But until the return on all that equity improves, there is little to drive forward shares.

Hold.

No need to run for pricey Corin

A stemmed cormet sounds as if might be an exotic bird, but actually it is a new type of artificial knee developed by Corin. There was no sighting of this creature in Corin's results yesterday, and investors got very twitchy as a result.

The figures themselves were pretty good (profits up 65 per cent to £2.4m, in line with forecasts) but news that the stemmed cormet has been rejected by US regulators knocked the shares back 7.5p to 166p. Corin had hoped the Food & Drug Administration would fast-track approval of the products - and is appealing against its decision - but costly new trials look like they will be necessary. The concern now is that the FDA will also be sceptical when, in a few years, the unstemmed cormet (with no stem to fix inside the bone) lands on its desk.

There were other product delays and sales disappointments in the results, which might not have overshadowed the strong growth but for the fact that Corin shares are the most expensive in the sector.

The potential for growth at this company is enormous if it can crack the US, and its performance elsewhere suggests the move to sell directly to surgeons, rather than via distributors, is going well. But it is only a hold for now.

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