Investment Column: Hold Reed Elsevier as a longer-term punt

Ladbrokes; Morgan Crucible


Our view: Hold

Share price: 486.2p (-7.3p)

Investors in Reed Elsevier will be hoping this year proves a little less eventful than 2009. Parts of the media group's business where smashed by the economic downturn and its chief executive, Ian Smith, left after just eight months when the board decided he wasn't right for the role. The new boss, Erik Engstrom, gave his first results presentation yesterday as Reed trumpeted a "robust financial performance in [an] unprecedented global recession".

Revenues hit £6bn – flat at constant currencies – but pre-tax profits fell by 6 per cent. Of its core businesses, the professional information arm Elsevier held up "relatively well" as revenues rose 9 per cent. Those at the Lexis-Nexis database rose 14 per cent.

The problems were at Reed Exhibitions, whose revenues fell 28 per cent because it had fewer paying customers as businesses cut marketing spend. Reed Business Information was also hit, with revenues falling 35 per cent during the worst advertising slump in living memory.

The parent company itself admits that now is not the time for short-term investors to buy in. Anthony Habgood, the chairman, said: "The late cycle nature of some of our markets makes for a tough environment in 2010."

However, he argued that Reed was a long-term recovery play because the fundamentals of its businesses were strong, its balance sheet was in good shape and new managers were in place who had the experience and ambition to drive it forward.

The company also hopes the rate of decline in advertising is also slowing, and it is targeting growth markets to lift revenue. It cut costs by £227m (not as much as some had hoped) and also reduced its debt from £5.7bn to £3.9bn after an equity issue last year.

Numis has Reed's stock on what it calls an "undemanding" 12 times estimated 2010 earnings but agrees that the pressure on the company will continue in the first half of this year, before comparatives ease in the second half. We would sit back and hold until Reed Elsevier's prospects look better.

Ladbrokes

Our view: Hold

Share price: 151.1p (- 5.5p)

Ladbrokes took a kicking yesterday after what looked like a dispiriting set of results. Its revenues fell to £963.7m from £1.05bn a year ago, while profits before tax dipped from £265.6m to £191.3m. The bookmaker has faced a bit of a perfect storm: punters have been betting less during the recession, but they have been winning more, at least on football matches where the effects of a surprisingly low number of draws in the Premiership have been well documented.

All that and no final divvy thanks to this year's rights issue, which did at least cut Ladbrokes' debt pile. It does not look pretty on the face of it and the company must also find a chief executive as well for when Chris Bell leaves.

But there are some hopeful signs for Ladbriokes, however. Its results were at the top end of the range thanks to a strong fourth-quarter and good takings from high rollers.

Last month's terrible weather was not kind because it decimated the racing programme – but Ladbrokes' profits will actually be ahead and it has pruned its costs. We like its loyalty card scheme (if Tesco can do it, why not a bookie) and see potential for a turnaround as economic woes ease and people feel a bit freer with their cash.

The shares are not cheap. Collins Stewart has them on 13.1 times forecast 2010 earnings, much more expensive than, say, William Hill. But we see enough potential to continue holding.

Morgan Crucible

Our view: Buy

Share price: 169.5p (+3.5p)

Yesterday's full-year results from Morgan Crucible were a rather mixed bag. The manufacturer of carbon and ceramics materials reported that its revenues were up 13 per cent at £943m but its pre-tax profits dropped by 45 per cent as margins narrowed from 13 per cent to 9.4 per cent.

On the plus side, net cash flow was 21 per cent higher, helped by a near-£40m debt reduction to £253m. Even more importantly, there was noticeable improvement in the second half of the year, as the company's cost-cutting measures boosted its margins from 9.2 per cent to 9.7 per cent.

But it is still tough out there. Mark Roberts, the chief executive of Morgan Crucible, described the past year as "the most challenging environment for industrial companies in decades".

The prospects for next year are only tentatively rosier, he said, with early signs of an improving order book but, significantly, he believes it is premature to be calling a recovery "just yet".

It is tough to argue with the analysts at Panmure Gordon, who said Morgan Crucible's results "lacked inspiration". Nevertheless, it is securing more orders and the stock does look undervalued, given that margins are also on the up.

The shares trade at a shade under 12 times 2010 earnings and could enjoy a re-rating once sales growth kicks in. That might not be as far away as the sceptics think, and Mr Roberts may be "managing expectations". Buy.

PROMOTED VIDEO
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
News
i100
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
Sport
Lionel Messi looks on at the end of the final
football
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Your picture is everything in the shallow world of online dating
i100
News
The Swiss Re tower or 'Gherkin' was at one time the UK’s most expensive office when German bank IVG and private equity firm Evans Randall bought it
news
Life and Style
Attractive women on the Internet: not a myth
techOkCupid boasts about Facebook-style experiments on users
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

HR Business Partner (Maternity Cover 12 Months)

£30000 - £34000 Per Annum 25 days holiday, Private healthcare: Clearwater Peop...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on