Stock Market Week; Three media giants set to create some excitement

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The Independent Online
Francesco Guerrera

MEDIA STOCKS are set to make the market headlines in a week packed with results announcements.

Traders longing for a summer of sun and long lunches will have to be chained to their desks for another five days to keep tabs on interims from 15 blue chips and an interest rate decision which could produce a surprise rise.

The three media giants on the block - Pearson, Reed and United News & Media - are odds-on to create some real excitement.

The sector is in a state of flux as technological advancements and changing regulatory frameworks have triggered a wave of consolidation. This rapidly shifting landscape has been accompanied by an erratic performance in the sector's share price. After underperforming in the latter part of 1998, the media sub-index has rallied, outdoing the FTSE All Share since the start of the year as investors warmed to its growth potential.

Pearson has been one of the standard-bearers of this media resurrection.

Shares in the publisher of the Financial Times and Penguin paperbacks have had a storming run since Marjorie Scardino took over as chief executive in December 1996. The key plank of Ms Scardino's strategy has been a radical reshuffle of Pearson's disparate empire.

The highly regarded executive has shed more than pounds 1.2bn of assets over the past two years -- including Madam Tussauds and a stake in the investment bank, Lazard - in an effort to boost the group's profits and market rating.

The proceeds have been used to deepen Pearson's focus in print media through the $4.6bn acquisition of the education publishing business of the US rival Simon & Schuster and an increased stake in Spanish newspaper group Recoletos.

All this chopping and changing will cloud today's results.

After meeting Ms Scardino's pledge of achieving double-digit earnings growth and doubling the company's market value, Pearson is set to post a steep decline in first-half pre-tax profits to around pounds 37m from pounds 86m in 1998.

However, the raw numbers do not tell the whole story.

For a start, Pearson's increasing dependence on the educational division - now the biggest unit in the group - means that profits are biased towards the second half when school books sales get going.

The second drag on earnings will be a hefty interest bill on the $2bn- plus worth of debt taken on to fund the Simon & Schuster deal. At a divisional level, expect another good year from the FT - where rising advertising revenues and lower costs of the US expansion should prop up profits.

Numbers aside, analysts will seek clues to the future of Pearson TV after its boss, Greg Dyke, departed to become the director-general of the BBC. The disposal of the division, which produces nuggets such as Baywatch and The Price Is Right, has long been rumoured and some experts believe that it could fetch some pounds 1.4bn. The man to spin off the broadcasting unit, which also owns a stake in Channel 5 and one ITV region, could be Michael Grade, one of the rumoured replacements for Mr Dyke.

United News & Media could be one of Pearson TV's partners. The group, led by Lord Hollick, has stakes in three ITV franchises and Channel 5 and would be a perfect fit for Ms Scardino's TV assets.

In its own business, United should have benefited from some improvement in Channel 5, where advertising hasperked up. Its Anglia, Meridian and HTV franchises should have done rather well but will be hit by the loss of the Channel 4 rebate.

The business magazine division is set to have suffered from tough markets, although consumer titles should have held up.

All in all, profits should come in at around pounds 144m from pounds 153m last year.

Lord Hollick's disposal dilemma is Express Newspapers. The publisher of the troubled mid-market tabloid is, as one analyst put it, "the pimple on United's backside", despite the latest cost-cutting drive. The Express is believed to be on the radars of the millionaire Barclays brothers. but so far the Price Has Not Been Right.

Talking of deals that might have been, Reed Elsevier is on the block on Thursday.

Until the appointment of Crispin Davis as chief executive, the Anglo- Dutch magazine publisher was constantly rumoured as a candidate to merge with the Holland-based rival Wolters Kluwert.

The arrival of Mr Davis from the media group Aegis has won Reed some breathing space but a continuation of the recent poor performance would give new grist to the takeover rumour mill.

The new man does not join until September and will be spared the torture of defending this week's depressing figures. After a couple of veiled profit warnings, analysts are going for a 9 per cent fall to around pounds 374m.

Reed's vast stable of consumer magazines should have suffered across the board with particularly poor performances from the scientific division and the information technology and manufacturing publications.

Part three of the banks' reporting season includes two High Street biggies. Barclays' figures on Thursday will be overshadowed by the appointment of the Irish-Canadian Matthew Barrett as chief executive.

Mr Barrett arrives in October and his reputation as a consolidator has reawakened talk of a tie-up, possibly with Royal Bank of Scotland.

A cost-saving shake-up of Barclays' branch network could also be on the cards. As for the figures, underlying profits should be flat at around pounds 1.3bn - although pre-tax profits should have fallen some 30 per cent due to restructuring costs and disposals.

Deutsche Bank analyst Mark Eady is predicting a steady rise in revenues thanks to stable margins, rising fees and a jump in personal lending.

National Westminster's interims, due out tomorrow, should be uninspiring.

Profits should come in somewhere between pounds 932m and pounds 1bn, compared with pounds 907m in 1998.

Good dealing revenues will probably be offset by tiny volume growth and rising costs.

NatWest's corporate action's plans will be the focus of attention, following rumours that it wants to buy the converting mutual Bradford & Bingley for pounds 2.5bn.