Why the glum share story for newspapers?

Johnston Press is the newspaper group that owns The Scotsman and the Yorkshire Post, and for years it has been cheerfully buying up local newspapers at prices rivals have been scared by. The company may not be a household name, but it has the best profit margins in the business and, like all newspaper rivals, has been reporting the best advertising market for the past two years . . . which is clearly why its share price is at its lowest level since the dark days of post-bubble 2001.

Something is not right here. You can buy Johnston shares today at eight times this year’s profits on a business that requires minimal capital investment with monopoly brands dotted all around the country. Nor is Johnston exceptional. If you like the Daily Mail, you can buy one of the bits that Viscount Rothermere does not own for ten times this year’s profits; the Daily Mirror, and its parent company, are available at eight times too.

This is cheap, ludicrously cheap. We all know what the Barclay twins paid for The Daily Telegraph; £665 million for a paper that made underlying profits of £30 million to £40 million. Valued on the same basis as Johnston Press (ie, after tax), it would have been more like £160 million - and the difference cannot be accounted for simply because the bragging rights in owning the Telegraph (dinner with the Queen, if desired) are greater than for The Scotsman.

Remember that when Richard Desmond bought the Daily Express and the Daily Star he paid £125 million. This year he paid himself £40 million and his company has no debt. The only business story about Mr Desmond revolves around his pay; tot it up and he has taken £166 million in the past four years. Not all of it is from the Express and the Star, but it does show it is possible to make money from newspapers. And while there may be lower investment in journalism at the Express titles, their circulation has not suffered dramatically.

What has brought this latest bout of misery on? You can point to Google, which is growing quickly but not having a severe impact on newspapers any more. On current trends, advertising is in recovery. Or you can fret about economic growth in 2008, but even that can be overdone. Despite the crisis among housebuilders, property advertising is healthy, and if builders can’t sell off-plan, they might have to advertise more. Newspaper companies are yet to feel pressure.

Circulations are falling, a bit, but add web readers and readership is up. Aided by cover price increases revenues are ahead too. Consumers are willing to pay more for the paper – the FT jacked up its price 30 per cent, with a minimal impact on circulation – despite the rise of freesheets. Even the Evening Standard has managed to stabilise, after the onslaught of the afternoon giveaways. Overall, Britain remains a country of newspaper readers. It is behind Japan, where the world’s top five titles are, but in Europe, after Germany’s Bild, The Sun, the Daily Mail and the Daily Mirror are the next three biggest.

Marcus Evans, the man who wanted to buy the Mirror, has just popped up as the saviour of Ipswich Town. One can only wish the conference company owner well, but he really has bought into the wrong industry (Ipswich are ninth in the Championship). If he wanted to make more money, the Mirror would be as much fun as football and offer a far greater hope of financial return. Newspapers are in a lot less trouble than the money men seem to think.

Who's next at the Daily Mail?

Viscount Rothermere, who owns most of the shares in the Daily Mail and General Trust, has some difficult decisions ahead. There are regular flurries of speculation about Paul Dacre’s health (although his recent absence was down to a bout of flu) and even concern in the Prime Minister’s camp at the prospect of losing what they see as a friend on a newspaper where support for Labour is just a pipe dream.

At the same time, Charles Sinclair, the chief executive, who has been at the company for a mere 28 years, is approaching 60 and some succession planning is needed there too.

Neither decision is easy: the company is far larger than the Daily Mail, but the newspaper is critical to the credibility and reputation of the business. Above all, the two who are appointed have to get on, although it is hard to imagine Mr Dacre’s successor wielding the same corporate influence. The succession questions have been in the air some time; there has to be a point at which they are answered.

Dan Sabbagh
The Times