Investment Column: Success story in local papers

TO THE untrained eye, local newspapers and convenience stores would appear to have little in common, apart from the fact that you can buy the former in the latter. But Portsmouth and Sunderland Newspapers disagrees.

The company, which yesterday reported a 47 per cent increase in profit to pounds 11m, believes that the complementary nature of its 20 regional papers and 184 local shops will deliver long-term growth.

The rationale seems simple enough: the steady earnings stream of local retailing helps to offset the cyclical swings of the newspaper business, where advertising revenue is at the mercy of the vagaries of the economy.

Not that Portsmouth and Sunderland needs to worry about its publishing business just at the moment. Last year, operating profit at its newspaper stable, which includes the Portsmouth News and the Sunderland Echo, rose 35 per cent, outdoing the retailing arm where earnings were up 32 per cent.

The growth was driven by higher advertising revenue, with recruitment ads up by a third on the back of a buoyant labour market. Revenues rose by another 10 per cent in April and May.

However, with local advertising approaching a peak Portsmouth and Sunderland remains vulnerable to a downturn. And the stores, which contributed 28 per cent of profits last year, will offer only limited protection.

The shares jumped 163p yesterday to an all-time high of 1125.5p. On a multiple of around 15 times house broker HSBC Securities' earnings forecast, the shares look about right.