Investment Column: DMGT poised to overcome local difficulties

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The Independent Online


Our view: buy

Share price: 499.1p (-3.9p)

Breathless tales of celebrity punch-ups have seen visits to the Daily Mail's website soar in the past year. The site is now taking on the US market – trusting in the universal power of gossip – and its parent company looks in good shape, but there are a few issues to sort out somewhat closer to home.

Daily Mail & General Trust's pre-close update, released yesterday ahead of its half-year results, reported revenues up 5 per cent, largely thanks to its business-to-business arm. Associated Newspapers, the division that oversees the Mail titles, was up 3 per cent despite a 2 per cent fall in circulation revenues as advertising rose.

The problem is the regional business, Northcliffe Media. The decision to turn down offers in 2005 because they did not meet the company's valuation is proving costly. It is now worth much less, and continues to struggle in the wake of the recession and what seems a structural shift in the industry.

First half revenues are down 8 per cent, which was worse than some analysts had hoped, largely because of a 27 per cent fall in recruitment advertising. The group hopes its appointment at Northcliffe of Steve Auckland, from the successful DMGT freesheet Metro, will turn it around.

Numis has the shares on a price of 10 times full-year 2011 earnings, which looks pretty cheap. The exposure to UK consumers in 2011 should dampen wholehearted enthusiasm for the stock, and the management is loath to be drawn on outlook, given the wider economic uncertainties, but there should be some upside here. Buy.

Aberdeen Asset Mgmt

Our view: buy

Share price: 209.5p (+1.1p)

It's easy to forget that Aberdeen Asset Management's reputation was in shreds five years after regulatory probes into its part in the mis-selling of split capital investment trusts.

Times have changed. After a series of bold acquisitions and prescient international expansion in developing countries, the fund manager has had to cope with the more pleasant problem of managing excessive demand for its emerging markets funds.

Martin Gilbert, the chief executive, reckons Aberdeen must have been the only fund manager hoping for a slowdown in the craze for buying equities in emerging markets.

Yesterday's trading update showed headline assets under management down 4 per cent in the first two months of 2011 but the company still had net inflows of £200m, including £459m in global emerging markets products. Net outflows in fixed income products, which had been a worry for the market, also slowed to £200m.

There was good news on the margin side, too, as more money flowed in to more profitable pooled funds compared with segregated mandates.

The company trades on a forecast 2011 price-earnings ratio of 2.2 with a dividend yield of 4.5 per cent, according to Royal Bank of Scotland estimates – roughly in line with its peer average. With a strong pipeline of unrecorded mandates, healthy cash generation, improving margins and people on the ground in the emerging markets, buy.

AG Barr

Our view: hold

Share price: 1,201p (+46p)

AG Barr, the maker of the Irn-Bru soft drink, delivered a fizzing set of full-year results yesterday. The Cumbernauld, Scotland-based company posted pre-tax profits up by 13.3 per cent to £31.6m, on sales up 10.4 per cent to £222.4m for the year to 29 January. Net debt is down £5.5m to £16.6m and it lifted its total dividend by 10 per cent to 25.4p. Sales in the first eight weeks of its current financial year are ahead of last year.

However, despite its momentum, we are not convinced of the investment case. The shares now trade on a forward earnings multiple of more than 20, which makes us reluctant to back them in what is likely to be tougher soft drinks market this year. Hold.