Reed investors nervous as volatile media group prepares its results; STOCK MARKET WEEK

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The Independent Online
Reed International has been a volatile stock in recent months and investors will be looking for reassurance from the media group this week when it reports its full-year results.

The shares took a severe knock in December when Reed warned that the strength of sterling would dent this year's profits. The shares shed 5 per cent of their value with some City observers expressing nervousness about Reed's comments that it was finding it difficult to find suitable acquisitions. Reed has been tipped in some quarters to undertake a major strike with a range of possible targets including Bloomberg. Even Reuters and Pearson have been mentioned.

Reed-watchers will be looking for clues on whether the company will gear up for a pounds 2bn-plus "biggie" or content itself with smaller, bolt-on deals such as the pounds 100m purchase of Tolley, the legal publisher picked up from United News and Media last autumn.

The other point likely to be highlighted is the cost of transferring Reed's material from hard copy to electronic distribution in its scientific and travel markets.

Reed is creating what it claims will be the world's largest scientific database, which will hold twice the amount of information currently available on the Internet. Reed hopes to make all of its 1,200 scientific titles available on the World Wide Web this year. The database is expected to cost around pounds 15m-pounds 18m to develop.

Though some analysts have expressed concern that Reed seems intent on sacrificing high-margin activities to invest in new technologies, others feel this is the right direction with electronic media becoming increasingly important. Last year electronic publishing accounted for 20 per cent of group sales compared to virtually nothing five years ago.

There may be more clues on the impending sale of Reed's consumer books division which was put up for sale in 1995. The process has been a stop- start affair with the sale being pulled after an auction drew bids of only a fraction of the pounds 250m Reed had hoped to fetch.

Reed sold its adult fiction titles to Random House last month for pounds 20m. This saw some of Britain's best-known imprints such as Heinemann, Minerva, Methuen and Sinclair Stevenson change hands. The imprints publish a number of top authors such as Umberto Eco, Roddy Doyle and Sue Townsend. Reed said it was selling the division as the adult fiction market was polarising between very large companies able to take advantage of significant economies of scale and small specialist businesses serving niche sectors. The adult fiction division accounted for only 1 per cent of Reed profits.

There has been recent talk that the remainder of the consumer books business, which includes reference, illustrated books and children's titles, might soon be sold to its management team. Reed has been hoping for a deal around the pounds 150m mark.

With Reed now expected to concentrate on professional book and business division acquisitions the market will be looking for information on to what extent these will drive earnings growth.

NatWest markets is expecting Reed's 1996 profits to show a 7 per cent increase to pounds 879.9m. Group turnover is expected to be down 6 per cent, largely due to disposals in the consumer division. The fastest revenue growth should come from the professional publishing business where Lexis- Nexis continues to make impressive progress and where the benefit of acquisitions, such as the Tolley deal, should be felt. Problems in the travel business should be offset by a strong performance in the exhibitions division.

It is a busy week for the media sector with Yorkshire Tyne-Tees, Mirror Group and United News and Media all reporting. YTT's shares continue to be driven by the expectation of a possible takeover and the likelihood a significant reduction in its licence payments some time this year. Analysts are expecting a sharp increase in full-year profits to pounds 28m.

Mirror Group's results may be affected by higher promotion and newsprint costs but should still show a modest profits gain to pounds 80m in the full year to December.

United News & Media's results will be the group's maiden figures since the merger with MAI. Though the results will be distorted by a range of exceptional items the underlying businesses are performing strongly. Full- year profits of pounds 280m are expected. The best performances should come from broadcasting and business services while consumer publishing and money-broking will be less spectacular.

In other sectors Friday will see the latest tidings from United Biscuits, the troubled McVitie's snacks group. The company has been under pressure after a disastrous run which has had some call for the head of chief executive Eric Nicoli. However, he has the support of the board.

The results will be scarred by exceptional losses, possibly as high as pounds 100m. Having exited the cut-throat American market and sold its Ross frozen vegetables division, UB is concentrating on markets where it has higher market shares and the underlying performance should be encouraging.

UB has regained market share from Frito in Australia and the UK is thought to be making progress. But the on-going battle with PepsiCo will dent profits in Europe. NatWest is forecasting pre-exceptional profits of around pounds 109m.

Also reporting next week is Rentokil, the ratcatcher, which absorbed the BET business services empire after a bitterly contested takeover battle last year.

Second-half trading has been tougher than expected, though the group is still thought to be on target to achieve its perennial target of 20 per cent earnings growth. Full-year profits of pounds 317m are expected against the previous year's pounds 214.5m. There will be around pounds 10m of costs relating to the reorganisation of BET. BET made a disappointing profits contribution in the first half and is thought to have continued to struggle.