Shares in Reuters crashed by more than 11 per cent yesterday after the news and financial information giant disappointed investors with its predictions for growth this year.
Many in the City had expected to upgrade figures for 2006, on the back of bumper profits at investment banks - the key customers for Reuters. Instead, there were downgrades.
Reporting financial results for 2005, Reuters indicated that core revenues would expand by no more than 2.5 per cent in 2006, after stripping out acquisitions and the benefits of its "Core Plus" growth programme. In July last year, the company appeared to suggest that core revenues were set to increase by 2 to 4 per cent, with analysts believing it was being conservative at the time. Conor O'Shea, an analyst at Teather & Greenwood, said: "It's a slower-burn growth story than many [in the City] were willing to concede... it's a reminder that there's still a way to travel."
Reuters shares had soared from 351.5p in late October to 460.5p in recent days, as investors assumed the sharp rebound in investment banking profits would provide lucrative new business for the company, led by Tom Glocer, its chief executive.
Mr O'Shea pointed out that the share-price move left Reuters trading on a heady price/earning multiple of 33 "not leaving much scope for disappointment". Its shares dropped 51.75p yesterday to 399.5p.
David Grigson, Reuters' finance director, said many of the areas of expansion for investment banks, such as trading and back-office operations were not necessarily good markets for the company's products. "We achieved what we set out to do. We didn't change our guidance [on future growth]. We feel we're on track," he insisted. Reuters said it expected "total growth" of about 5 per cent this year, but that included 1.5 per cent extra from acquisitions and 1 per cent from the Core Plus programme. Of the remaining 2.5 per cent, analysts said that up to 2 per cent would come from price increases, leaving volume growth looking very weak.
Citigroup, Reuters' house broker, cut its earnings forecast for 2007-08 by 12 per cent. Citigroup also said the 2005 revenues were some £20m below expectations.
Reuters reported that full-year revenues were up 3 per cent in 2005, marking the first annual growth for four years. On an underlying basis, the figure was flat but the second half saw 1.7 per cent growth. Group profits rose 28 per cent to £482m.Reuse content