More on Emap
Emap
Emap is a magazine publisher and radio broadcaster with a track record of growth. Its UK magazines business publishes a huge range of titles that ragen from Heat to the Nursing Times. It is also an organiser of business exhibtions and publishes consumer magazines in France.
In the first half of the 2004/5 financial year UK consumer magazines and Emap Communications (business magazines, exhibitions, conferences) were the main growth drivers with both the music business and Emap France declining.
The UK consumer magazines business (32% of operating profit) not only has a range of established successful titles, but also has a track record of being able to launch and grow net titles such as Heat and Closer. More recent launches such as Zoo have also been successful - Zoo added one percent to total magazine circulation in its year of launch. One oddity in performance has been a lower than market growth in adverting revenues (+3%) despite gains in market share in terms of circulation, which suggest that rates have not been good.
Emap Communications’ (28% of operating profit) growth is largely the result of the recovery in its (cyclical) markets with organic revenue growth up 9% and profit growth of 19%. As with consumer magazines advertising revenue growth (+5% underlying) has lagged circulation (+9% underlying) revenue growth, although in this case it at least broadly in line with the market.
The French consumer magazines (25% of operating profit) performed poorly and we see no reason to expect a turnaround any time soon given that the market is more competitive than it has been in the past.
Radio is performing poorly, as are music magazines (together with music TV, 25% of operating profit). This does not seem to be a problem restricted to Emap and we are concerned that the wider radio sector may not recover as strongly as we previously expected. This certainly, in part, reflects the BBC winning audience share at the expense of commercial radio, it also reflects weaker than hoped ad spend. The company’s comments on the lack of innovative new music to drive magazine circulation are interesting. It would appear that music magazines are suffering from the same shift in demand that is driving growth in Emap’s celebrity magazines. Music television is performing better, which also reflects trends in demand. None of these drivers are likely to change.
Emap has one extremely strong business with an excellent track record (consumer magazines outside France), one benefiting from cyclical recovery (Emap Communications), and two (French consumer magazines and music) that are performing poorly and likely to continue to decline.
The PE of 14.4× (at the current price of 825p) is not cheap but would be attractive if Emap was its stronger businesses - and to an extent it is as these two businesses generate 60% of operating profits. The problem is the weaker business and the lack of any reason to expect recovery in the medium term.
Random picks: Aga Foodservice | Aggreko | Catlin | Centrica | Compass | De Vere | Mitchells & Butlers | Northern Foods | Pennon | Westbury