Investment Column: Emap could hit problems

Its been a bit quieter at Emap since its recent boardroom spat, but things have been bubbling away in the background, as yesterday's pounds 85m acquisition of Macmillan Magazines' health services division indicated. Through the deal, Emap has inherited six well-known trade titles, including Nursing Times and Health Services Journal, and analysts are confident that Emap will be able to make cost-savings of up to pounds 1m on the business, which made operating profits of pounds 8.4m last year.

Results for the half year to the end of September were good, with pre- tax profits up 27 per cent to pounds 64.5m. The company is taking advantage of the buoyant economy and falling paper prices by almost doubling its investment in its magazines and radio stations this year to around pounds 14m. Consumer magazines turned in a dazzling performance in the UK, although the French titles suffered on translation because of the strength of sterling and the weaker economy across the Channel.

The second half of the year will see some big new launches like Red, a women's magazine which hits the street in the UK in the New Year. There will also be new launches in France.

Radio didn't have such a good tale to tell, with advertising growth suffering from management changes. The 10 per cent rise compared with the industry average of 14 per cent.

Despite the strong figures, there are significant question marks over Emap's future. Robin Miller, chief executive, said yesterday that although there would be growth in the second half, it would not be as strong as it has been in the past six months. Paper prices are likely to rise again, and increases in advertising revenue may start to tail off. The other uncertainty is whether Emap will be successful in bidding for IPC, Reed Elsevier's consumer magazine division.

Merrill Lynch says Emap is trading on a price/earnings ratio of 18 for the year to March 1999 on the basis of forecast profits of pounds 158m. That looks cheap compared to its immediate peer group, Reed and Reuters, but it is full enough compared to expected growth in the low teens.