Austerity measures effect publisher

By Graeme Dickson
Updated: 11:56 EDT, 1 December 2010

Keep an eye on Reed Elsevier (REL) a FTSE 100 publisher and information provider serving professional users in the science, medical, legal, risk management and business to business sectors.

The company issued an interim management statement about two weeks ago stating that subscription levels of its professional markets remain subdued, while weaker revenue and increased investment in the legal markets will cause a modest reduction in operating margins.

The company is also at the mercy of austerity measures set by governments around the world, with budget cuts for example in academia causing a knock on effect on journal subscriptions and database revenues.

One of the most appealing things about Reed is its dividend which yields about four per cent.

The company trades on a historic price to earnings ratio of 14.4 and has 229 per cent of net gearing, albeit most of this is in intangibles.

The main risk to this idea is that the recent rumours of a £1 billion buy-out of its exhibition business might cause an upward revaluation, albeit some might argue that if we are to expect a global recovery, then it might be flogging one of its best assets.

A close above 540p would invalidate this suggestion, but otherwise look for a retest of 460p in due course.

Update

G4S (GFS) – suggested to sell at 241.3p, the shares dropped to 237.9p yesterday. The shares appear to be heading south towards the 200 week exponential moving average of 223p, a point which perhaps one would lock in half their profits.

Bovis (BVS) – suggested as a sell at 330p, the stock closed yesterday at 333p yesterday. The shares have incurred what appears to be a brief respite following a mildly positive broker note on the sector last week. Sit tight – the shares could still head towards the support of 270-280p in due course. Keep the stop at 359p.

William Hill (WM) – suggested as a sell at 164p, the stock closed yesterday at 155.5p. The company is expected to place a bid for Tote, the state owned bookmaker, which might act as a drag on the shares given the uncertainty of how much it will value the business. I am reasonably confident the shares will touch 137-150p region in the not too distant future. Cut the position if the stock closes above 166p.

Punch Taverns (PUB) – mentioned as a sell at 69.05p, the stock closed yesterday at 61.25p. The shares made a partial recovery following press comments that it might dispose of up to 6,000 tenanted pubs. Keep the stop at 66p to ensure profits but if the stock trades at 55p, take profits on half of your position.

Compass Group (CPG) – mentioned as a sell at 520.5p, the stock regrettably hit the stop of closing above 560p after what appears to be a solid set of preliminary figures. The position should now be closed.

Avis (AVE)– suggested as a sell at 210p, the stock closed yesterday at 200p. The stock continues to drift and I would be inclined to keep holding while lowering the stop based on a close above 212p.

Jardine Lloyd Thompson (JLT) – tipped as a sell at 566p, the stock closed yesterday at 583p. Keep the position but be aware of the 720p a share bid rumours circulating the market. A close above 605p will be a definite signal to exit the position.

Barclays (BARC) – suggested to sell at 309p, the stock closed yesterday at 256.15p. Lower the stop to 281p to ensure profits.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Alpha Terminal.