Investment Column: Reed and UBM are worth holding for now

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The Independent Online

The two publishers who updated the market yesterday generated varying degrees of excitement with their results. But is either Reed Elsevier or United Business Media (UBM) worth a punt in the longer term?

Reed's in-line results were met with a slight bump in the share price with the company sticking with the guidance issued at its prelims, though it kept up the tradition of holding its cards close to its chest.

Earlier this year, the group said 2011 would see a "gradual recovery" and "a continued improvement of performance" and there is a fairly positive vibe around the stock.

The analysts pointed to a good performance in the first quarter from its LexisNexis Risk operation as well as a return to growth by the LexisNexis Legal division and Reed Business Information. Management also expects Elsevier's growth to continue in a similar vein to 2010.

The dark clouds on the horizon came in the form of the company's Exhibitions business. While the results showed progress, it added that 2011 would not be a strong year.

Lorna Tilbian, senior analyst at Numis, believes the company is making "solid operational progress", adding that it was fairly valued. The broker currently has the stock on a valuation of 11.3 times estimated full-year earnings for 2011.

UBM's first-quarter statement was much more detailed, and investors liked what they saw, with the shares rising strongly in response. Revenue was up to £237.7m, with underlying growth of 7.5 per cent. Adjusted operating profits were up a healthy 18.6 per cent to £44.6m.

Chief executive David Levin said the company is on track to hit expectations for the full year. At its end-of-year results, the boss had been pretty bullish, saying: "We expect the improved quality and shape of the business to result in sustained underlying revenue growth during 2011."

The company has been on an acquisition drive and expects the new buys to drive profits, adding it also expects "momentum in our events business". Underlying revenues at the events arm were up nearly 16 per cent while its PR Newswire operation rose 8.3 per cent and online was up 14.2 per cent. Data services enjoyed an almost 5 per cent bump.

The downside for UBM was in its print business, which was 13.1 per cent lower, but Gareth Davies, analyst at Investec Securities, believes the underlying trends were in the company's favour. His valuation is set at an attractive 10 times estimated full-year earnings for 2011. The group also boasts a forecast yield of 5 per cent

What worries us is that the company will face tougher comparatives in its figures this year, and will be hit by seasonal effects. The company has talked about serious investment this year in data services, online and targeting, distribution and in its monitoring business, admitting that the moves will temper growth.

In both cases, we did not hear anything that would make us press the "buy" button. That said, there was nothing so negative as to merit a "sell" stance. We'd keep holding both Reed, which closed at 537.5p, up 2p, and UBM, which was 18p higher at 590.5p.

Promethean World

Our view: Hold

Share price: 63.5p (+5p)

Yesterday's update from Promethean was far from inspiring. The interactive whiteboard manufacturer said overall trading for the first quarter was in line with hopes, with quarterly revenues down 22 per cent at £41.9m.

The company did qualify the grim figure by noting that the comparable quarter last year had proved "particularly strong", and featured a big Spanish contract.

It further made the point by highlighting the fact that, if the Spanish contract were put aside, revenues would be down only 15 per cent, or 13 per cent in constant-currency terms.

Fair enough, you might say. We, however, would be minded to be cautious, as Promethean is exposed to the squeeze in US education spending.

On the upside, the company showed off a contract to supply around 8,000 interactive display systems to Italian schools, which will boost the second-quarter figures. But it did add that while it still believed in the long-term demand drivers for its offerings, "market conditions will remain challenging through 2011". We could not agree more, and would be wary of buying in.

Promethean trades on a pretty thin enterprise multiple of under 4 times, according to Altium. Taken together with the good news from Italy, we think that weighs against a "sell" recommendation now.

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