The Investment Column: Merger boost to St Ives' profits

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The Independent Online
Merger boost to St Ives' profits

Monday's merger mania was undoubtedly good news for St Ives, one of the UK's largest printers of corporate finance documents. The group, which reported a 16 per cent increase full-year profits to August yesterday, has around a fifth of the UK domestic corporate finance market and the same of the London-originated market on international deals.

The company printed the documents for some hefty deals - like the Halifax and Norwich Union demutualisations. However, that was tempered by the general election, which dampened the market, and a reduction in annual report print runs following the takeover flurry in utilities.

Though the book market has picked up in the autumn, growth was pretty flat in the year without special projects like the Penguin 60s range which boosted 1996.

The real growth for St Ives should come from mail order and direct advertising, a market growing at some 8 per cent a year and 30 per cent of group turnover. Magazines, also 30 per cent of sales in the UK, are also getting fatter and growing interest in computer and Internet-related topics has given that division a kick.

With its biggest markets growing well, St Ives should benefit. Its management is highly rated and it has an impressive track record for accurate and fast printing and distribution. Sterling will remain an issue, but mainly on translation as St Ives needs to be near its key customers to provide a fast service and so doesn't export much.

The real question will be what the company will do with its pounds 26m cash pile, set to grow given the group's strong cash flow and high returns. With 75 per cent of its business still in the UK it looks vulnerable to an economic downturn here. Any cash should go on building on its German and US businesses.

ABN Amro Hoare Govett forecasts pounds 52m profits next year. The shares, up 12.5p to 532.5p, are on a prospective earnings ratio of 15. In line with the sector, but growth prospects for this company look above average. Good value.