The Investment Column: Marketing boost for Abbott Mead

ADVERTISING is a notoriously cyclical business. When economic conditions deteriorate, a finance director's knife becomes magnetically attracted to the advertising budget.

In the last six years, advertisers have seen their business grow without so much as a blip. But it debatable if the boom times can last much longer.

Unlike its rivals in Maddison Avenue, Abbott Mead Vickers lacks the global reach which could protect it from a downturn in the domestic economy. So, it has switched to other devices.

In the three years since 1994, the advertiser has, in effect, switched from being an advertising company that does marketing to being a marketing company that does advertising. Whereas marketing brought in just 39 per cent of profits in 1994, it now brings in 59 per cent.

Because marketing - such as PR, design, literature and packaging - is less cyclical than advertising and less likely to be brutalised by recession, this should reassure shareholders.

Abbott Mead Vickers has maintained its position as the largest advertising company in the UK, and is likely to stay that way for a while. New business went well in 1997, with the company winning contracts with Aer Lingus, Volvo and BT Business Communications.

Earnings in the year to December 1997 were ahead of expectations at 17.3p a share and Panmure Gordon forecasts 19p a share for this year. The shares yesterday rose from 386p to 402.5p, valuing the group at pounds 290m. This puts in on a multiple of 21- high but much lower than many of its peers. Worth a punt.