Investment Column: Emap looks solid but highly priced

OVER THE past year, Emap's share price graph has borne an uncanny resemblance to the circulation graph for FHM, its popular lads mag. However, it would be a tad simplistic to suggest that Emap's popularity in the City is entirely down to the success of putting near-naked babes on the news-stands. Although UK consumer magazines is Emap's largest business, it also has a similar operation in France and an exhibitions subsidiary, not to mention a well-established radio division.

All four divisions contributed to Emap's growth in the year to March, when underlying profits rose by 17 per cent to pounds 142m on continuing sales which were up 4 per cent to pounds 773m. The question, however, is whether this kind of growth can be sustained. Given that paper prices are at record lows and advertising rates hitting all-time highs, it would seem that things can only get worse for Emap.

Expansion plans in the UK are also constrained by competition laws. A looming Monopolies and Mergers Commission inquiry put Emap at a severe disadvantage in the race to buy the IPC magazines group. And radio ownership rules mean that Emap had to sell Red Dragon, its Cardiff station, in order to be allowed to buy Melody, the London easy-listening outfit.

That said, Emap believes there is plenty of growth in overseas markets. It has already launched FHM in Australia, and is planning similar moves into other countries, including a possible foray into the US if it can find the right deal.

Back home, it will continue to launch new titles - the company expects that launch costs this year will be about pounds 20m - up 50 per cent on the previous 12 months. The launch of Red, the women's glossy, suggests that Emap still thinks there is room for more titles on the newsagents' shelves.

All this makes Emap a solid, and relatively risk-free, media stock. There is no digital hype - soon-to-be-chairman Robin Miller is cool on the prospects for digital television channels based on magazine titles, while his enthusiasm for digital radio is waning. However, this also raises the question of whether Emap justifies its current rating. On profit forecasts of pounds 161m the shares, which dropped 12.5p to 1280.5p yesterday, trade on a forward multiple of 25. Given Emap's exposure to an advertising downturn or higher paper prices, the shares are high enough.