In recent weeks, a compact or tabloid edition of the Irish Independent has appeared on newsagents shelves across the country. The content of the broadsheet and compact editions

is exactly the same, with the compact edition aimed mainly at commuters.

The Irish launch follows the successful launch of the company's namesake (but separate) title in the UK. In the UK, the Independent has gained significant market share since the launch of its compact edition late last year.

Unlike the Irish Independent, the UK title has been loss-making for many years but, if recent circulation gains are sustained, losses would be much reduced.

However, the UK market is extremely competitive - already the Times has launched a compact edition and is making circulation gains.

Although the group's UK business is important and high-profile, it generates just under 10 per cent of the group's overall operating profits. This compares with the one-third of group profits generated in Ireland, with Australasia and South Africa accounting for the remainder. Thus the non-UK and Ireland operations generate well over half of Independent News and Media (IN&M) group's total profits.

Despite the advent of new media developments due to the internet, print and publishing still represent about 85 per cent of the group's activities. Therefore, the key factors influencing the success of the company are circulation figures, cover prices and advertising revenues.

Advertising tends to be very sensitive to trends in overall gross domestic product (GDP). Slower economic growth in Ireland and the UK in 2002 and 2003 had a negative effect on overall advertising spend.

As the largest player in the Irish newspaper market, IN&M could not avoid the negative impact on its advertising revenues.

However, there were indications towards the end of last year that advertising spending had begun to pick up. Forecasts for the Irish economy in 2004 are generally optimistic and, therefore, the improvement in advertising spending evident late last year should carry through into 2004.

Meanwhile, the market environment in South Africa and Australasia has been generally favourable, with the group enjoying circulation gains and buoyant advertising markets. If the global economic recovery continues to gather steam, these favourable advertising trends should benefit IN&M.

The share price has responded positively to the steady improvement in the company's fortunes. So far this year, the share price has risen by more than 10 per cent but, over the past 12 months, the shares have sharply outperformed a rising Irish equity market.

This recovery in the share price has also been underpinned by the company's recapitalisation programme. At the end of 2002, IN&M had net debt of more than €1.3 billion, which was considered to be excessive by most financial analysts. In March 2003, the management announced that it was undertaking a recapitalisation programme with the aim of substantially reducing debt.

This was to be achieved through a combination of disposing non-core assets and issuing new equity. This programme has been successfully implemented, and net debt is estimated to have fallen to just over €1 billion.

However, the shares are not particularly highly rated compared with other newspaper groups. The accompanying table shows that IN&M is trading on a price earnings ratio (PER) of 14.3 and has an attractive dividend yield of 3.7 per cent.

This compares with the Daily Mail in the UK, which trades on a PER of 29.1 and a dividend yield of only 1.3 per cent. IN&M's PER is also significantly lower than the two Australian groups shown in the table, eventhough it has a 41 per cent controlling interest in APN. However, these comparisons do need to be interpreted carefully.

Bearing this in mind, IN&M still holds out the prospect of further share price growth - as long as recent trends in advertising revenues and circulation gains are sustained.

The newspaper and media business is highly competitive but, with the notable exception of the UK, IN&M has a market leadership position in its other markets - giving it a competitive edge over its rivals.

The company is therefore well-positioned to take advantage of the expected upturn in the global advertising cycle, and shareholders should thus be able to look forward to the future with confidence.

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