Investment: Downturn test for Newsquest
Wednesday 11 November 1998
Because the publication of local newspapers is Newsquest's core activity, it relies on advertising for the bulk of its revenues. Most analysts believe that, if there were a significant downturn in the economy, Newsquest's earnings from recruitment ads - 20 per cent of its overall advertising revenue - would be badly hit, with its operations outside London and the South-east most affected.
Analysts are sticking to forecast profits of pounds 65m for the full year and earnings of 22.2p per share. With the stock trading up 8p to 250p on the back of this release, the forward earnings multiple is still above 11.
Analysts will agree that there is not much fundamentally wrong with the company, and that it is undervalued in the long term. Due to the cyclical nature of its earnings, however, there is still some scepticism about short-term prospects, and the share price may have some way to slide as the economy slows.
Potential investors would be well advised to bide their time before climbing aboard.
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