The Investment Column: Emap set on its spending spree

Emap, the magazines to radio group, has managed to shrug off last year's boardroom bust-ups to emerge once more as a City darling. Yesterday's pre-tax profits of pounds 121.1m for the year to March beat analysts' forecasts - which ranged from pounds 110m to pounds 120m - and were up an impressive 40 per cent on last year's pounds 86.5m.

And the secret of Emap's success? Falling paper prices helped, according to Robin Miller, group chief executive. So did the UK economy, which prompted an upturn in underlying advertising revenue in the UK consumer magazine division of 11 per cent. Overall, the operating profit margin was up 2.8 per cent to 16.4 per cent.

Emap's acquisition strategy has paid off too, with major purchases such as Tele Star, one of France's largest television magazines, and Metro Radio contributing pounds 12.8m to pre-tax profits.

And there's no sign of Emap flagging on the acquisition trail. David Grigson, the finance director, says the company could take on debt levels of up to pounds 440m, which would leave room for further spending of between pounds 250m and pounds 300m.

Any purchases would, Mr Miller says, be in Emap's core radio, consumer magazines and business communications markets. In other words, buying a television production company is not on the agenda.

If there is a cloud on the Emap horizon, it relates to personnel. The ousting of Professor Ken Simmonds and Joe Cook from the board, over a dispute about changes to the articles of association, saw the shares drop substantially last year.

And the day last February the then managing director, David Arculus, defected to United News & Media saw a further 27p slump in the shares to 785.5p.

The stock hasn't fully recovered, dropping 5p to 782.5p yesterday, impeded in part by uncertainty over who is to succeed Sir John Hoskyns, the chairman, when he retires in July next year.

The company is, however, taking steps to calm City fears by ensuring that the succession is a painless one. An announcement is anticipated in the autumn, and if - as seems increasingly likely - Mr Miller takes over from Sir John, the issue will be resolved without too much panic.

Analysts' profit forecasts for the next few years look pretty heady. Profits for the current 12 months are expected to be in the region of pounds 142m; while in 1998/99 they are forecast to exceed pounds 160m. The forward price-earnings of 17 therefore drops to 15, which analysts reckon means the shares are undervalued by around 12 per cent. Investors still have time to tuck a few away.