The DK love affair continues

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The Independent Online
Few companies have benefited quite so much from the market's love affair with multi-media as Dorling Kindersley, the publishers of high- quality books and, increasingly, high-margin CD-Roms. The shares had already climbed nearly 50 per cent this year in advance of yesterday's results.

In the event, a 41 per cent rise in pre-tax profits to pounds 12.7m in the 12 months to June was far enough ahead of expectations to push the shares to 458p yesterday. The performance to date has been justified by the earnings record and the prospects. DK has averaged revenue growth of at least 20 per cent annually for the past seven years, hitting an impressive 30 per cent growth this past year. Moreover, geographic spread is weighted toward the US market, where the market for CD-Roms is expanding rapidly.

Publishers such as DK, which have impressive back libraries of traditional book titles, can easily turn their collections into new money-spinners by developing CD-Rom interactive versions. Sceptics point to future dangers. New competition will one day squeeze the company's currently fat margins. At the same time, the reference market is unlikely to keep growing at the rates recently experienced.

But these are unlikely to be a problem for some time. DK's margins are a long way from peaking, and there remains plenty of new product to come on stream this year and next. As for competition, DK is already a respected leader, and likely to see off many of the new entrants. In that, it is helped by the minority shareholding owned by Microsoft, the acknowledged king of multi-media.

Despite a forward multiple of about 25, based on profits of pounds 19m this year, the shares are not overvalued for a company producing strong growth in an interesting sector.