Shandwick slow to grow

The Investment Column

Public relations companies do not have a particularly impressive record on the stock market and there is a plausible line of argument that they should not be publicly quoted at all. There is a good reason for that - when a business's assets go up and down in the lift every day, the quality of earnings they generate is necessarily extremely volatile. Add in the fact that the companies tend to be small, dependent on one country's economy and vulnerable to cuts in discretionary spending and it is a wonder that so many have tried their luck on the stock market.

The volatility of the sector has been no better exemplified than by Shandwick, as dependent as any of its peers on keeping hold of temperamental, expensive staff. In most other regards, it looks dangerously like a proper company, albeit a pretty dull one.

Profits for the 12 months to October, announced yesterday, showed record revenues of pounds 122.3m which resulted in a 20 per cent jump in pre-tax profits to pounds 9.2m. Earnings per share were a slightly better-than-expected 4.9p, allowing the dividend to be lifted 10 per cent to 1.43p for the year.

The main difference between Shandwick and many of its rivals is that it genuinely has a global business, which means it can offer a world-wide communications service to clients. For clients such as Digital and MasterCard, that central control of their international image is very attractive.

Elsewhere, Shandwick's interactive arm, which designs, maintains and markets Web-based communications on the Internet, looks well placed to benefit from the rush by companies to create a presence on the information superhighway.

The trouble with Shandwick is that all this carefully packaged good news is slow to show through. Earnings per share have bounced between 4p and 6p ever since the company recovered from 1991's disastrous losses and the shares, once they had rocketed from the 4p at which the market had severe doubts about the company's future, have done little in the past three years.

At 55p, up 3p yesterday, the shares trade on an undemanding price/earnings ratio of 11. If growth continues at the current level the shares look reasonably attractive, but given the inherent instability of the business, they are not worth chasing much higher.