Johnston Press has too much bad news

Volex share price fails to reflect all the telecoms risks; Antisoma deserves a better bill of health

As media groups continue to be battered by the global advertising slump, Johnston Press was yesterday able to boast a little local lack of difficulty.

Johnston – publisher of such scintillating titles as the Eastbourne Herald, the Grantham Citizen and the Whitby Gazette – is proving that the local and regional press can remain relatively unscathed as giant companies slash their advertising spending. Local businesses are still paying to put in adverts – known as display advertising – and the classified pages, particularly the property sections, are also still robust.

A trading statement yesterday revealed that Johnston's advertising revenues in the first five months of this year are up 2 per cent on the same period in 2001, a nudge ahead of expectations. The shares rose 4.5p to 399.5p as a result of the statement, which also said the company is making progress with the integration of Regional Independent Media, owner of the Yorkshire Post, which it bought for £560m. Tim Bowdler, Johnston's chief executive, said the company would extract annual savings of £9m from the integration, which has included shutting RIM's corporate headquarters. Redundancy costs and the like will lead to a £3m one-off charge in the next financial results.

It doesn't appear Johnston got a bargain on RIM, particularly since it looks as if advertising revenues may be falling at these new additions to the portfolio. They have a greater exposure to "situations vacant" advertising.

It is also not clear that the future for the regional press is as rosy as the historical trading numbers might suggest. It is possible that local advertising is "late cycle", rather than resistant to the economic downturn entirely. Local advertising is much more closely associated with consumer confidence, and there is every reason to fear that may not be maintained at its current levels.

With an interest rate rise sounding more likely after comments from the Bank of England's Governor Sir Edward George last week, the property advertising and display ads that have buoyed recent trading may melt away. Recent results from Johnston's rivals Trinity Mirror and Daily Mail & General Trust suggest situations vacant advertising is already on the wane.

The outlook for circulation is hardly exciting, either. Johnston puts at least some of the decline in sales of its daily evening papers down to the disruption caused by a £40m upgrade to its presses. But circulation is clearly on a gentle downward slope, perhaps as people feel less connected to their local communities.

Reduced newsprint costs and other efficiencies should ensure a strong rise in earnings this year on only modest sales growth, but the risks are growing and the recent surge by the shares has made the stock expensive. Sell.

Volex share price fails to reflect all the telecoms risks

The latest despatch from the telecoms equipment sector is as gloomy as ever. Volex, which makes copper cable and components for fibre optic networks, reported back to the stock market yesterday, saying that it can't imagine any growth at all in the market for another year at least.

After their late Nineties binge on network building, telecoms operators are showing less inclination than ever to buy equipment. As a result, Volex's sales plunged 34 per cent to £276m in the year to 31 March, producing a pre-tax loss of £14.0m. The group has slashed 3,300 jobs, 29 per cent of its workforce, and yesterday said it would not pay a final dividend.

The buy case for Volex shares rests on two shaky assumptions. The first is that the trading situation is not going to take another downward lurch. The savage cost-cutting leaves the group able to break even on turnover of about the same as last year. But with customers such as Lucent still seeing their incomes falling quarter on quarter, it is not clear that Volex has seen the worst of its cusomers' cut-backs.

The second assumption is that Lucent and the like will increasingly choose to cut down on the number of component suppliers they deal with. Volex makes great play of its hope that it can win extra business from the smaller rivals that will be shut out by this trend. While this is eminently logical – it is a respected global player – Volex is also likely to see its margins squeezed considerably as a result. Its customers are few and large, and big contracts are sure to come only at considerably lower prices.

The group yesterday said it had won the support of its banks with a new two to three-year financing package, which takes out one area of uncertainty, but the likelihood of the group meeting the market's profit forecasts is not yet more than fifty-fifty.

The shares simply do not recognise these risks. Up 5p to 175p yesterday, they still trade on about 13 times estimates of this year's earnings. Anyone left with the stock should cut their losses.

Antisoma deserves a better bill of health

A favourite sport of investors is identifying the next biotech company running out of cash and chasing its share price into the floor. Knowing the market is to be tapped for funds, why not sell the stock, safe in the knowledge it can be bought back cheaper in a fundraising later? Antisoma has been a recent plaything of the speculators, but the cancer drug developer got its rights issue away in February and deserves to see its shares recover.

The company raised £22m at 20p per share and has enough money to continue its research into 2004. That should give plenty of time to discover whether Pemtumomab, its main product, can be a giant-selling treatment for ovarian and gastric cancer, making Antisoma's shareholders rich. The launch of Pemtumomab, a radioactive antibody from mice that works to shrink tumours, has been delayed into 2005 because regulatory authorities in the US told Antisoma it needed to trial the drug in more people. It should have finished recruiting ovarian cancer patients for Phase III trials by the end of this year, another milestone that could boost the share price from yesterday's 21.25p.

Other newsflow this year should also be positive. Yesterday the company said another product, DMXAA, will be trialled as a treatment for lung cancer, after recent data suggests it is effective in cutting off blood-flow that allows tumours to grow. And the group is in advanced talks to license Therex, a breast cancer product, to a bigger pharmaceutical partner. That would mean a nice new deposit in Antisoma's bank account, and the funding to take Therex into substantial human trials.

With the company's management making an effort to rehabilitate itself with the City after last year's shenanigans, the stock is worth a punt.