Dorling books another rise

INVESTMENT COLUMN

The relentless growth of the multimedia company Dorling Kindersley is almost boring, but having seen their shares grow two and a half times since flotation in 1992 investors won't be complaining. Yesterday's leap in interim pre-tax profits to just over pounds 8m (pounds 5.3m) continued the good news.

Fuelled by its enviable success in the fast-expanding multimedia sector, which now accounts for 12 per cent of sales, and by its growing presence in the all-important US market, the company is on its way to another record year.

Can the trend be sustained? It certainly appears so, judging by the sales of its new CD-Rom titles, its expanding foreign-language editions and its early dabbling on the Internet. The City expects profits to rise by at least 20 per cent year-on-year in 1996 and 1997. Margins are still healthy, despite growing competition in the CD-Rom market, while the appetite of American consumers, who account for a third of DK's sales, looks nearly insatiable.

The keys to the company's strategy have been quality (lavishly illustrated books, imaginative interactive CD-Roms) and marketing. Fears that the departure of Microsoft as a strategic investor late last year would slow things down have yet to be realised.

DK has also been careful to build its library of titles, and to be prepared to adapt them to any successful distribution platform.

There is no other company quite like it in the UK, and the traditional methods of valuation aren't much use. The shares now trade at a heady multiple of 36 times forecast earnings in the year to June 1996, on an average estimate of pounds 16m (13.8p a share). No other media company promises such impressive earnings growth, but at that price there is little room for error.

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