The Investment Column: Pricey paper at Taylor

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The Independent Online
FOR EVIDENCE of overheating in the new issues market, look no further than the flotation of Taylor & Francis. Institutions have been scrambling for shares in the scientific and technical publisher, which celebrates its 200th anniversary this year.

Yesterday, the group announced that its - admittedly modest - share issue was approximately 10-times oversubscribed. This means that a business which was originally supposed to be valued at about pounds 100m will actually be worth almost 30 per cent more when its shares start trading at 200p on Monday.

This is good news for the existing shareholders - mostly family trusts and a few venture capital groups - who have admirably resisted the temptation to cash in. In fact, just 18 per cent of the shares will be publicly traded when dealings begin. But it also begs the question whether the publishing group deserves to be valued on a close to 20 per cent premium to the rest of the market.

True, the likes of Reed Elsevier have proved just how lucrative scientific publishing can be. When it comes to squeezing the most out of its subscribers, however, Taylor still has plenty to do. Margins on its journals are currently just half the 40 per cent Reed consistently manages to make out of scientific publications.

Taylor also has its work cut out on the books side. The section, which contributed about a third of revenues but almost no profit last year, is being reorganised. Analysts think Taylor should eventually be able to make margins of about 5 per cent, offering plenty of prospects for growth. The chief executive, Tony Selvey, is also bullish about acquisitions, though the risk remains that, faced with competition from larger groups, he will be tempted to overpay.

But, at the moment, much of this potential has to be taken on trust. Taylor & Francis is a solid business, but the shares are not worth chasing.

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