The Investment Column: Scottish Radio

SCOTLAND HAS traditionally been the reluctant guinea-pig for such pioneering inventions as the poll tax. But it has also been reluctant to embrace the Internet. Radio stations exposed to the affluent south, such as GWR and Capital Radio, have reported strong rises in advertising revenue thanks new Web business, but Scottish Radio Holdings has seen little benefit; "dot.com" advertising accounts for less than 5 per cent of its radio revenues, less than half the level of its rivals.

Hence SRH's strategy of holding back from pouring millions into digital radio and interactive media, and to invest instead in less sexy mediums such as billboards and local newspapers. SRH's "modest" digital investment is unspecified, and it is pursuing its digital ambitions through partnerships.

A strong performance from SRH's outdoor division, established through three acquisitions since March, drove SRH shares to an all-time high of 1,215p yesterday, but profit taking saw the shares close 40p lower at 1,145p. Compound earnings per share growth is now 26 per cent.

SRH sees scope to expand both the press and outdoor businesses, 27 and 1 per cent of the business respectively, by piecemeal acquisitions. While the outdoor business does not enjoy radio and press's 30 per cent margins, it shares radio's double-digit growth trend.

Analysts expect pre-tax profits to come in at about pounds 17.5m and earnings at 45.6p per share, putting the shares on a forward p/e multiple of 25. That's a discount to SRH's peers, reflecting press and outdoor advertising's vulnerability to economic slowdown, but it's still good value.