Wyndeham Press Group

In an upbeat half year results announcement, Wyndeham Press (WDSW) reported robust sales growth, increased profits and an improvement in trading conditions. The printer of magazines and commercial material recorded interim earnings per share of 4.4p, a healthy 47 percent improvement on 2003. We are particularly heartened by management comments that pricing and supply/demand dynamics in the magazine market are improving. We expect Wyndeham's integrated print services offering will flourish within this context.

Wyndeham's sales rose 16 percent to £69.1 million, which is largely composed of turnover acquired in the Graphics Facilities deal, but also includes organic sales growth. We were delighted to see gross profit margins strengthen to 25 percent from 21.7 percent a year earlier, as we believe this indicates the re-emergence of pricing power. Robust margins and reorganisation savings combined to boost operating profits 37 percent to £4.1 million.

The £5.9 million acquisition of the pre-press business 'Graphics Facilities' has been a resounding success to date. Management commented that synergistic benefits in combining Graphics Facilities with Wyndeham Argent are already being realised. The deal makes WDSW the largest specialist pre-press operation in the UK. We are pleased to learn that the integration of technologies and processes is progressing strongly with management expecting further savings and efficiencies will be identified.

Wyndeham's contract wins include a £2 million per annual deal to produce the newly launched 'Reveal' magazine. WDSW is producing all elements from pre-press through to covers, text printing and binding. This type of all-in-one contract is precisely the type of business now being targeted.

Following recent contract gains and anticipated further revenue growth, management has decided it is now timely to purchase a 64 page printing press at a cost of approximately £7 million. The press will be fully operational by this time next year, with management confident of filling capacity in the medium term.

From an industry perspective we are highly encouraged by management reports that the balance between supply and demand in the magazine print market has improved and pricing has stabilised. Publishers are becoming increasingly upbeat, and this has driven a number of new title launches.

UK advertising volumes and rates, however, remain at similar levels to 2003. The health of the national advertising market is important to Wyndeham Press as it affects the size of print runs, and the number of magazines on the market. We remain confident that the current advertising upturn in the US (traditionally a leading indicator to the UK) will ultimately filter through to domestic demand.

The commercial print market remains competitive, with upward pressure on energy costs in particular. Nevertheless we believe Wyndeham's integrated approach leave it strongly positioned to capture sales from large organisations which are increasingly placing all their business with one printer.

We believe that Wyndeham's competitive position within a recovering industry is strengthening. In addition we expect earnings growth to be boosted as further synergies are realised from current integration initiatives. Trading on a prospective price earnings ratio of around 12 times and offering a dividend yield of 4 percent, WDSW is conservatively priced in our opinion. We also take comfort that the stock is backed by 76p of tangible net assets.

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