View from City Road: Burden lifted from MGN

AS A business, ignoring all the frauds and thefts, Mirror Group Newspapers is doing a lot better without Robert Maxwell. True, as predicted in these pages in August, the group made a tactical error by increasing the Daily Mirror's cover price in July. But Maxwell was a poor manager, cutting costs in unsubtle ways and having little idea how to build revenue. Without him, MGN should be able to develop the company to be one of the UK's premier newspaper publishing groups.

The trouble is that 54 per cent of MGN's shares are in the hands of Arthur Andersen, the administrator of the Maxwell private companies. And though it has to sell the stake eventually, thus giving control to someone else, Andersen is giving no indication of selling in the short term. The management of MGN live in constant fear of a new buyer who will get rid of them all when he takes over. This does not make for progressive management, and the group seems to be letting its minor titles such as the Sunday People drift while it clings on to Maxwell era initiatives, such as the pounds 113m Anderston Quay printing works project in Glasgow.

The group's half-year results seem to show a company breathing a sigh of relief that a weight has been taken from its back. Operating profits of pounds 49.4m comfortably cover the interest charge of pounds 22.9m and a pounds 9m contribution to the pension funds.

This leaves pre-tax profits of pounds 15.3m, earnings of 2.6p, but no dividend, as MGN's bankers will not allow one. There are no sensible figures to compare these with from last year.

In the second half of the year MGN will have the benefit of the Mirror price rise, despite its depressing effect on circulation, and pre-tax profits should rise to at least pounds 35m, giving earnings of about 6p a share. Simply multiplying this by 15 to give a slight market premium would push the shares to 90p, compared with 63p, down 2p, where they stood yesterday.

At 90p the group would be worth pounds 370m. But any purchaser would have to refinance the company's pounds 260m of debts, insecure in the knowledge that MGN's cash position will deteriorate due to the Anderston Quay investment. Anyone buying for an eventual bid may have to be patient.