Good news from Emap fails to cheer

THE INVESTMENT COLUMN

There was a storming set of interim figures from Emap, the magazines to radio group, so the market's unwillingness to reward an unexpectedly large profits increase with a share price rise was telling. The failure of shares to respond to good news is one of the signs of the end of a bull run, so shareholders should take note of yesterday's unchanged close at 553p.

First, the good news, though. Underlying half-time profits up 70 per cent served to confirm the benefits of Emap's continuing focus on specialist niche publishing, the timing of its diversifications into France and commercial radio, and the skill of its handling of spiralling newsprint costs.

Specialist magazines such as Motor Cycle News, Angling Times and Empire are actually among the last expenditures to go when consumers are cutting back. Even in bad times, circulations stay high, cover prices can be increased and advertising yields pushed higher. In the good times, profits and cash flood in, so the division's higher operating margins were no surprise.

Moving into radio, with last year's TransWorld acquisition and the more recent Metro Radio buy, could not have been better timed: just as the industry was increasing its share of the overall advertising cake. While ad revenue growth has slowed in the past six months it is still way ahead of Emap's other divisions and rates were pushed a useful 16 per cent higher.

Elsewhere, good management helped create an 8 per cent margin in France, compared with nothing at all a year ago, and wiped out the negative impact of a 30 per cent increase in paper costs for the newspaper division. Overall costs in regional papers were held steady, which meant a 3 per cent rise in revenues was translated into a 22 per cent rise in operating profits.

Share prices, however, look into the future and, although analysts were yesterday nudging their forecasts slightly higher to about pounds 82m for the full year, investors are more likely to focus on the company's downbeat comments about the slowing rate of growth in advertising revenues across its activities.

Having risen more than threefold over the past five years, the shares trade on a prospective price/earnings ratio of 20 to next April and a still heady rating in the high teens in the year to 1997. Even for a ship this tight, the advertising cycle will determine the share price and that is high enough.

Filofax rise could falter

Filofax has made plenty of money for those who backed new management to pull the personal organiser maker out of the mire. From 13p in 1990, the shares now stand at 269p, down 6p yesterday.

But the rise in the shares has slowed in the last two years and at some stage it is inevitable that doubts will start to creep in about the ability of the chief executive, Robin Field, and his team to maintain the faultless momentum built up through the recovery phase. Yesterday's half-way figures certainly showed no let-up in the recent heady expansion. Pre-tax profits shot ahead 37 per cent to pounds 2.91m in the six months to September, with management demonstrating its own confidence in the future with a 29 per cent rise in the interim dividend to 1.35p.

The UK market, the most mature for the original Filofax organiser, is still clocking up growth of between 10 and 15 per cent. But having picked up its nearest rival, Topps of England, in a pounds 6.6m deal earlier this year, the group now controls a commanding 85 per cent of its domestic market, limiting future market share gains.

That puts the onus on the rest of the world and diversifications into greetings cards, pens and office notepads. Filofax itself still has plenty to go for on the Continent, with the four subsidiaries there reporting growth in excess of 50 per cent in the half year and spending on organisers in France and Germany way below that in the UK.

The test for management will be handling that level of growth in the core operation, while also juggling with developing businesses. A full- year result of pounds 6.8m would put the shares on a forward p/e of 17. Holders should perhaps follow the example of some of the management yesterday and take some profits.

Heed warning

from Rexam

Two profits warnings later, Rexam, Britain's biggest packaging group, has underperformed the rest of the stock market by nearly 36 per cent since it reported in May that trading conditions continued "by and large" to be helpful.

To be fair, the difficulties that prompted yesterday's warning of profits one-fifth below the 1994 figure of pounds 231m have been experienced across the market. And Rexam was not alone in thinking the destocking that followed the levelling-off in raw material prices earlier this year was a temporary phenomenon. It wasn't, and the weak demand that prompted Rexam to announce in August that it expected flat profits this year has continued into the fourth quarter.

On top of an expected pounds 25m hit to profits, falling plastic resin prices and the threat of lower paper prices is likely to lead to some write-downs of stock values at the year-end. Profits of pounds 185m this year would put the shares, down 37p at 335p, on a prospective multiple of 15. But the real question is how Rexam fares in 1996. Even if profits bounce back to pounds 200m next year, the shares will still be on a price/earnings ratio of 13. Avoid for now.

Start your day with The Independent, sign up for daily news emails
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

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Recruitment Genius: Financial Administrator

£19000 - £22000 per annum: Recruitment Genius: An exciting opportunity has ope...

Recruitment Genius: Mortgage Administration Team Leader

Negotiable: Recruitment Genius: This company prides itself on its ability to p...

Day In a Page

A Very British Coup, part two: New novel in pipeline as Jeremy Corbyn's rise inspires sequel

A Very British Coup, part two

New novel in pipeline as Jeremy Corbyn's rise inspires sequel
Philae lander data show comets could have brought 'building blocks of life' to Earth

Philae lander data show comets could have brought 'building blocks of life' to Earth

Icy dust layer holds organic compounds similar to those found in living organisms
What turns someone into a conspiracy theorist? Study to look at why some are more 'receptive' to such theories

What turns someone into a conspiracy theorist?

Study to look at why some are more 'receptive' to such theories
Chinese web dissenters using coded language to dodge censorship filters and vent frustration at government

Are you a 50-center?

Decoding the Chinese web dissenters
The Beatles film Help, released 50 years ago, signalled the birth of the 'metrosexual' man

Help signalled birth of 'metrosexual' man

The Beatles' moptop haircuts and dandified fashion introduced a new style for the modern Englishman, says Martin King
Hollywood's new diet: Has LA stolen New York's crown as the ultimate foodie trend-setter?

Hollywood's new diet trends

Has LA stolen New York's crown as the ultimate foodie trend-setter?
6 best recipe files

6 best recipe files

Get organised like a Bake Off champion and put all your show-stopping recipes in one place
Ashes 2015: Steven Finn goes from being unselectable to simply unplayable

Finn goes from being unselectable to simply unplayable

Middlesex bowler claims Ashes hat-trick of Clarke, Voges and Marsh
Mullah Omar, creator of the Taliban, is dead... for the fourth time

Mullah Omar, creator of the Taliban, is dead... again

I was once told that intelligence services declare their enemies dead to provoke them into popping up their heads and revealing their location, says Robert Fisk
Margaret Attwood on climate change: 'Time is running out for our fragile, Goldilocks planet'

Margaret Atwood on climate change

The author looks back on what she wrote about oil in 2009, and reflects on how the conversation has changed in a mere six years
New Dr Seuss manuscript discovered: What Pet Should I Get? goes on sale this week

New Dr Seuss manuscript discovered

What Pet Should I Get? goes on sale this week
Oculus Rift and the lonely cartoon hedgehog who could become the first ever virtual reality movie star

The cartoon hedgehog leading the way into a whole new reality

Virtual reality is the 'next chapter' of entertainment. Tim Walker gives it a try
Ants have unique ability to switch between individual and collective action, says study

Secrets of ants' teamwork revealed

The insects have an almost unique ability to switch between individual and collective action
Donovan interview: The singer is releasing a greatest hits album to mark his 50th year in folk

Donovan marks his 50th year in folk

The singer tells Nick Duerden about receiving death threats, why the world is 'mentally ill', and how he can write a song about anything, from ecology to crumpets
Let's Race simulator: Ultra-realistic technology recreates thrill of the Formula One circuit

Simulator recreates thrill of F1 circuit

Rory Buckeridge gets behind the wheel and explains how it works