Broker snap: Reed's discounted valuatiion is justified

31st Jul 2009 11:55

Shares in publishing group Reed Elsevier recovered a little on Friday morning after the battering they took on Thursday following the company's disappointing results.Broker Nomura identified two aspects of the results which unsettled investors: the £824m dilutive share placing, and the 7% decline in organic revenue."The net result is a 17% reduction in our 2010 EPS forecast, which leaves the shares on a 2010 PE multiple of 10X. Although not expensive relative to history, the multiple reflects the realization that Reed's portfolio contains some highly cyclical components, and the possibility that the rate of investment may have to be accelerated in order to restore organic growth," the broker's analyst Colin Tennant asserts. "Until the new top management team is in a position to provide more details on the scale, timing, and ambition of any new investment, which may not happen for several months, the discount rating is justified, in our opinion," Tennant believes.As well as cutting its 2010 EPS forecast the broker has cut its 2009 EPS forecast by 8% to 44.8p.