Investment: Reuters proves City doom mongers wrong

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The Independent Online
REUTERS MUST sometimes wish it was further removed from its City audience. Terminals on the desks of virtually every trader and fund manager means that shareholders are all too aware of the company's strengths and weaknesses. With major financial institutions gloomy about looming job losses, the boys in red braces naturally assume that Reuters shares their suffering - in three months the group had lost almost half its value.

Not for the first time this year, the City got it badly wrong. Yesterday Reuters delivered the perfect riposte, reporting a 10 per cent jump in underlying revenues for the three months to September. The star was Instinet, its US share trading facility. Market volatility on Nasdaq boosted the number of transactions, lifting revenues (adjusted for exchange rate movements) by 18 per cent.

The chief executive, Peter Job, further cheered the market with a forecast that, on current projections, full-year operating profits will show double- digit growth.

Not that Reuters is completely in the clear. If the turmoil worsens and banks fold, its recurring revenues will be hit. The US investigation into its Reuters Analytics subsidiary is another short-term worry.

In the longer term, questions remain over strategy. Reuters' aim to extend its products to those who don't need instant real-time information is sound. The worry is that, with the growing use of the Internet as a delivery mechanism and more competition in the market for historical information, margins will come under pressure, although returns on investment and cash flow will still be strong.

However, these concerns are not new. And the 10 per cent surge in Reuters shares to 517.5p yesterday suggests the stock is simply oversold. On a multiple of 17 times Dresdner Kleinwort Benson's full-year profit forecast of pounds 627m, investors have a chance to get into what is still a growth stock at a low price. Buy.

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