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
Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
News
General Election
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

Ashdown Group: Head of Client Services - City of London, Old Street

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders