Shares: The right time to go into print

PRINTING has the reputation of being a classic boom-and- bust business.

There have been some casualties from the recession, such as Hunterprint and Wace, which are shadows of their boom-time selves. But the leading operations, such as St Ives and Watmoughs, have come through in good shape, while smaller industry players including Bemrose Corporation and Jarvis Porter are also doing well, helped by management changes at the top. Most striking have been the massive capital expenditure programmes at St Ives, Watmoughs and the stock-market newcomer, Hunters Armley, and the corporate activity in the sector, with a number of acquisitions and fund- raisings. Share prices have rallied strongly, but more is coming.

All five shares look attractive investments at current prices.

St Ives, at 330p, has come to be regarded as the sector 'blue chip' since it was floated in 1985. It made a series of acquisitions in the 1980s, helped by a strongly rising share price, before catching a short-term cold with the acquisition of the City printer Burrups, ahead of a severe downturn in activity in financial markets. Profits have dropped by around a third from peak levels, but the business has generated cash even during the worst times. This has enabled the group to finance a staggering pounds 130m-plus capital expenditure programme since 1987.

Latest results put a damper on a share price which had rocketed from 240p to around 350p in a few months and has led to 1993 profit forecasts being shaded. Printing demand picks up late in the economic cycle, but when it does improve, the impact on St Ives will be dramatic, making the shares a strong buy in the current weakness.

The runaway success in the sector is Watmoughs at 658p, where investors are becoming increasingly excited about European expansion. Last year the group launched a rights issue to finance a new plant in Spain to print two Spanish glossies, Hola and Blanco y Negra, and the hugely successful UK version of Hola, Hello] magazine. These five- year contracts ensured the profitability of the Spanish operation while leaving capacity for expansion.

The group has a small operation in Hungary, which has already built up to capacity operation and has exciting potential. In 1992 the group invested pounds 60m in new capacity and state-of-the-art equipment, nearly half the then market capitalisation. Earnings per share should rise 20 per cent this year and next, with a possible acceleration in the growth rate in 1995 as the full benefit of new contracts starts to come through, making the shares good value even on a price- earnings ratio over 20.

The Yorkshire-based Hunters Armley, at a peak 141p, also looks a good bet to benefit from recovery. Like Watmoughs and St Ives, the group specialises in the quality end of the market, with customers including GUS, P & O Cruises, Marks & Spencer, Barclaycard and Euromoney. Profits have raced ahead since 1990, when the managing director, Brian Sugden, led a buy-out from Wace. The group is expected to grow at a healthy 25 per cent rate over the next couple of years, putting a p/e of 18.8 in perspective.

One of two companies with a new direction under changed management is the labels specialist Jarvis Porter, at 228p. The group, which reports its 1992-93 figures in the last week of May, has a strong base for expansion from its dominant position producing high-quality labels for the UK spirits business. Last year Richard Brewster, who played a key role in building the paper producer David S Smith, became chief executive. He has made acquisitions, taking the group into beer-mats and giving it a significant share of the market for labels for the toiletries and pharmaceuticals industry. The impact of these purchases will be felt particularly in the current financial year, when a spectacular profits surge is expected to boost the shares. Bemrose Corporation, at 326p, has been refocused by its chief executive, Roger Booth, who came into the group when his family company was taken over. Under-performing businesses were sold or closed down and the group has concentrated on the corporate promotion market, as well as being the UK's largest cheque printer and second largest ticket printer.

Most recently it has acquired the outstanding 50 per cent of its US joint venture, Bemrose Yattendon, a leading player in the US speciality advert market, and a UK diary business. The US business has grown rapidly in recent years, and all divisions of the group are said to have begun well in 1993.