The Investment Column: Heavy investment pays off at Reuters

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Reuters presentations may be about as much fun as an undertakers' convention, surprising for a company supposedly in the communications business, but there is no faulting the company's performance. Investors who bought Reuters' shares five years ago have almost quadrupled their money even if the price has slipped in recent months. The shares fell 25p to 703p yesterday but that was due more to market jitters than any concerns about the company's numbers.

The interim figures were particularly impressive given the company's investment in its new generation of information and dealings systems, Reuters 3000, launched earlier this month. Pre-tax profits rose 19 per cent to pounds 342m in the six months to June on sales up 11 per cent. A slowdown in growth in the second quarter was partly due to the consolidation in the banking and fund management markets which has hit new installations. But the theory is that, once the consolidation settles down, the stronger banks will use more Reuters' products.

The big event of the year is Reuters 3000, which the company has spent three years and pounds 70m developing. The screen-based system, designed to steal a march on competitors such as Bloomberg, offers a wealth of in- depth analysis to professional users. It is also priced around 5 per cent higher than its predecessor, Reuters 2000.

The other issue that should be settled is the fate of the company's pounds 800m cash pile which is set to grow to around pounds 1bn by the end of the year. A share buy-back or special dividend is anticipated by the end of the year, though it is thought the company is ironing out a few tax wrinkles for institutional shareholders. When Reuters conducted its last share buy-back - pounds 350m in 1993 - institutions received a tax credit.

There were only a handful of disappointments in the figures. The half- year contribution from the Americas was hit by slower revenue growth, though the company continues to invest heavily there. Revenues from media products were also affected by the reduction in the stake in London News Radio whose figures are no longer consolidated in Reuters accounts. The other worry is the 31 per cent rise in central costs. This was due to more in-house product development but also higher litigation expenses which the company declined to explain.

Even after its investment in Reuters 3000, the company is still investing heavily. The next 18 months are set to be one of increased capital investment, coming on top of the pounds 143m spent in the first half. Panmure Gordon has upgraded its full-year forecast from pounds 685m to pounds 692m, putting the shares on a forward rating of 24. That is a pretty fancy rating for a company whose earnings are expected to grow at only about 13 per cent for both of the next two years, but selling Reuters has never been a sensible option.