Bottom Line: Reed Elsevier a good match

YESTERDAY'S results from Reed Elsevier may have been the first since the two groups merged, but the story is all about the old businesses. A 7 per cent rise in underlying operating profits, on sales just 1 per cent ahead, is no mean feat when advertisers and consumers alike still have the hatches battened firmly down.

But Peter Davis, chief executive, is not claiming mystical synergy benefits from the merger - indeed, he insists that the costs of integrating the two groups cancelled out the benefits.

All he is prepared to claim for the merger is that it enabled the group to field a French-speaking team to negotiate the purchase of Editions Techniques although, at just pounds 77m, he admits it was quite likely either company could have done the deal on its own. Similarly, Reed would almost certainly be in the bidding for Official Airline Guides as an independent company.

If the benefits of the merger still have to be clearly demonstrated - and seven months is too short a period in which to judge - at least shareholders can take comfort from the fact that they are not suffering. Indeed, if the combined management can achieve what they did separately there should be little cause for complaint.

The group is coy about splitting the results between the two partners, but it does look as if each party can claim some of the credit for the increased efficiencies and cost-cutting that drove the profits increase.

Elsevier can be proud that it managed to maintain margins in scientific and medical, even though uncertainty in the pharmaceutical market cut medical profits by half, while a 1.5 percentage-point improvement in consumer margins - largely brought in by Reed - is equally impressive.

Scientists may be less vulnerable to recession than advertisers in consumer magazines, but the combined group still earns 35 per cent of its revenue from advertising. That means the doubters could still be surprised by the scope for cyclical recovery - even though Mr Davis is making no claims about when, or how quickly, that will come.

If the more optimistic forecasts are right, that should be reflected in growth rates of 33 per cent this year and 16 per cent next, giving pounds 545m and pounds 614m respectively. That puts the shares, down 4p at 660p, on a prospective multiple of about 18, a premium of about 20 per cent to the market, while the 3.5 per cent prospective yield is hardly generous. But if the management can run the combined group as well as they ran the individual ones investors' confidence could be well rewarded.