Smaller Companies: Adscene's bad news is over

Adscene, the free sheet and paid-for newspaper publisher and printer, produced weak preliminary results last week, writes Richard Phillips. Sales up pounds 6.2m to pounds 55.6m left operating profit unchanged at pounds 6m after an exceptional charge of pounds 800,000, while pre-tax profit fell to pounds 4.8m (pounds 5.1m). Earnings per share fell to 9.5p from 15p.

The problems were concentrated in its printing division, where management problems emerged after an abortive MBO last year. That was followed by the departure of its directors.

Despite management upheavals - the group was without a finance director for a lengthy period - the core issue to confront the chairman and chief executive, Harry Lambert, is where future growth can come from. At this point, the business cycle as it affects newspapers is favourable. Advertising revenues, he said, are "comfortably ahead" in the first three months. Newsprint prices have passed their peak, and there may be the prospect of improving rates for the contract print division.

But the publishing side has the most bearing on prospects at the group. At the end of 1995, Adscene shelled out pounds 19.5m for the Tamworth Herald group of newspapers in the Midlands, and pounds 9.5m to buy 13 titles in Kent from Emap. The two purchases have now been fully integrated, and in Kent especially the resultant mix of paid-for and free sheets gives the group greater clout with advertisers. Nevertheless, the dilution from the deal, funded by a pounds 24m share placing, was a big factor in the slippage in earnings per share. The criticism was also made that the group had bitten off more than it could chew.

The future strategy remains the same: to develop in a region a mix of paid-for and free sheets, creating a more dominant local presence. But there are limited prospects for more acquisitions, as Mr Lambert acknowledges. So in the short term the question is what sort of improvement can be expected from the existing business. If exceptionals are stripped out, and allowing for continued growth in publishing, it is reasonable to see profits recovering to just over pounds 6m, without much improvement in printing. Earnings could reach 13-14p to leave the shares, at 120p, trading on a multiple of nine.

A "for sale" sign still hangs over the printing division, but Mr Lambert is in no rush to sell and there are no bidders at the moment. With the recent upheavals seemingly out of the way the shares look to offer decent value, while on the track record of the business the downturn should be seen as a one-off.