Mecom shares plunge 30 per cent after downgrade by house broker

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The Independent Online

Shares in Mecom plummeted 30 per cent yesterday after the company's house broker cut its profits forecast for the AIM-listed news-paper group on the back of a cautious trading statement.

The European regional newspaper group, which is chaired by the former Mirror Group chief executive David Montgomery, suffered as brokers slashed forecasts for 2008, citing higher depreciation charges and interest costs. Its shares closed down 14.5p at 33.75p.

Earlier, in a trading statement to the London market, Mecom said that it expected results for 2007 to fall "within the range of analysts' expectations".

The company, which owns Berliner Zeitung in Germany and the Berlingske Tidende in Denmark, said that it was restructuring its editorial newsrooms into "unified content departments" with an emphasis on online growth.

Mecom said an increasing number of staff were now focused on new online product developments and that it expects digital revenues for 2007 to come in around 25 per cent above the figure for 2006. The company also confirmed that it was eyeing new digital business acquisitions as it sought to grow non-traditional revenues.

Mecom's house broker Numis reacted to the statement by putting out a note revising its estimate for the company's 2008 pre-tax profit, cutting it from 128m to 102m. Numis said that the downgrade was "material" and reflected an inc-rease in its estimate for depreciation, which went from -49m to -56m, owing to new circulation and distribution systems, and interest, which rose from -33m to -40m.

The broker said: "We believe that with 1.4bn of regional newspaper turn-over and just a 14 per cent forecast Ebitda margin, the group has a significant restructuring opportunity ahead of it. However, our downgrade highlights the execution risks."

Analysts at Cazenove also trimmed their estimates, cutting their 2008 earnings-per-share forecast by 15 per cent, from 5.3p to 4.5p, to reflect higher depreciation and interest costs. Cazenove also cut its estimate for 2009 earnings per share, reducing them by 13 per cent from 6.7p to 5.9p.

Numis maintained its "buy" recommendation for the company's stock. while Cazenove stuck to "out-perform".

Mecom said that profits at Royal Wegener, the Dutch regional newspaper publisher in which it acquired an 87 per cent stake last year, were growing as expected and that plans to integrate Limburg, another local newspaper pub-lisher which it acquired in 2006, into Wegener were "ready for execution in the first half of 2008".

In Norway, where Me-com's titles include Drammens Tidende, the company said that the outlook for 2008 was "positive" as the business augmented "its already strong on-line pos-itions with a number of small acquisitions in related and new digital areas".

The company was also confident about its operations in Poland, where it also hinted at acquisitions, and Germany, where it said the outlook was "broadly positive" despite some impact from trading losses at Netzeitung, which it acquired in July 2007.

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