Emap rides the ad cycle with skill

Investment Column

Publishing magazines like Your Cat and papers such as the Ampthill & Flitwick Times may not be most people's idea of the glamorous world of the media, but, as Emap has found, it doesn't half bring in the profits when the advertising cycle is moving in the right direction.

Advertisers like being able to hit their target audience precisely, readers like the focus on whatever it is they're interested in, and technological advances mean new titles can be tested at little expense. There's no need to tie up huge amounts of capital and the industry's profits have an enviable ability to pass straight through into free cash-flow.

Emap is currently operating in a pretty benign environment. Advertising is on a roll across the board, from consumer magazines to business publications, local newspapers and local radio. And unlike the cut-throat national newspaper business, cover price rises continue to outstrip inflation.

That, and the benefit of a pounds 250m shopping spree over the past year, helped pre-tax profits rise 40 per cent to pounds 63.9m, with an encouraging 22 per cent rise in underlying profits. Earnings per share of 22.2p were a third better than last year and allowed a 14 per cent dividend increase to 9.75p.

Emap has an impressive record. When others were paying silly prices in the boom years, it stuck to what it knew best - launching new titles. When some of its competitors came unstuck, it was in a strong enough financial condition to make a string of well-timed moves, including a successful step into radio just as the industry finally started taking the share of advertising it had always claimed it could but had failed to deliver.

Local radio has traditionally only managed to secure about 2 per cent of display advertising, compared with much bigger slices of the cake in Europe and especially America. The recent proliferation of stations and more sophisticated selling of the medium have, however, taken UK radio's share up to almost 4 per cent and rising.

Elsewhere, moving into a loss-making French consumer publisher and achieving operating margins of 5 per cent on the way to promised double-digit returns also seems to be a well executed diversification, and despite last year's heavy capital expenditure, borrowings are still a manageable pounds 134m with interest covered 11 times.

Emap's management reckons it has a couple more years of growth in the current ad cycle, although the rate will inevitably slow from last year's exceptional levels. If the higher prices papers are now able to charge for advertising make up for the short-term impact of still-rising pulp prices, it is probably right.

Emap's shares have had a good run, as befits a company that can boast 20 per cent compound growth in both earnings and dividends over the past 10 years. Since early 1991, the shares have almost tripled to yesterday's 460p, up 3p.

At that level, however, they stand on a forward price/earnings ratio of 17, a hefty premium to the rest of the market. At this stage in the advertising cycle, and with cost pressures persisting, that is high enough.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones