The Investment Column: Newsquest profits rise
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Your support makes all the difference.NEWSQUEST is a clear example of what can be done with an unfashionable business when management concentrate on nothing else. When Reed Elsevier and Pearson decided to sell their regional newspaper divisions they were applauded by investors for dumping dull businesses.
So how come Newsquest is doing so well? The company, which bought the Reed and Pearson divisions with the help of US buyout specialists Kohlberg Kravis Roberts before joining the market at a share price of 250p last October, has managed to revitalise them. Full-year results for 1997, published yesterday, showed operating profits of pounds 70m - up 43 per cent on the previous year on a pro-forma basis.
According to Jim Brown, Newsquest's chairman, that performance is down to two factors. First, the cost savings from integrating the Pearson and Reed businesses, which will be about pounds 5m-a-year when complete. Also important is investment - Pearson had starved its division of new machinery. Newsquest spent pounds 10m on capital spending last year and is likely to splash out pounds 15m this year.
Newsquest is also building up its online services, using its local newspaper websites as a gateway for local advertising.And while Newsquest is benefiting from rising advertising revenues, it remains vulnerable to any downturn. Analysts forecast 1998 profits of pounds 64m, placing the shares, up 3.5p to 293p yesterday, on a forward p/e ratio of 13. Good long-term value.
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