OVER the years there have been periodic jitters over Reed Elsevier’s key scientific publishing activities. First it was the fear that scientists would become their own publishers. It didn’t happen. Then the fear was that the Anglo-Dutch publisher would lose out to the internet. Instead Reed Elsevier spent several hundred million pounds creating an international online platform for scientific publications.

Yesterday the company highlighted the fact that last year 175 million articles were downloaded compared with 86 million in 2002. The plan now is to do the same for lawyers and then further develop the online presence of business-to-business publications.

The latest threat to Reed Elsevier comes in the form of “open access” publishing where scientists or institutions pay for their own publication and make it freely available. If everyone did that Reed Elsevier would have a large hole in its business.

Chief executive Crispin Davis was reassuring about this new “competitor”. Open access publishing accounts for only 1 per cent of the total market at the moment. And according to Davis there were still large questions about the financial viability of the publishing model. Open access could, Reed argues, actually represent a large cost for research-based institutions.

The “facts” were that Reed Elsevier had a 96 per cent renewal rate for scientific journals last year and its price rises, at about 6.5 per cent a year, were consistently in the lower quartile of market rates.

The reassurance — at least for now — and a better than expected pre-tax profit figure of £1 billion at constant prices, helped power Reed Elsevier to an 8 per cent share price rise — the fastest riser in the FTSE 100.

Scientific and legal publishing will continue to grow, and better days are expected next year for Reed’s other two arms, education and business-to-business publishing. The company is promising a restoration of double-digit earnings growth from 2005 and it is far from clear that all the potential upside has already been factored into the share price.

Record levels of investment in innovation, accelerating growth, strong cost controls, and must-have professional information add up to a potent mix — despite the obvious impact of a weak dollar. Add

Mayflower Corporation

TWO profits warnings in two months, and both because of troubles at the same operation, speaks volumes about a management’s grasp of its business. In mid December, Mayflower Corporation gave warning that things were not going too well at its TransBus unit, but the company gave little guidance about the impact. Yesterday Mayflower was more forthcoming, indicating that pre-tax profits would be no less than £6 million because continuing TransBus trouble.

As analysts were estimating profits of about £17 million, the scope for disappointment is large. The preliminary results were due next week, but have been put back to “no later than end-March” while Mayflower clears up accounting issues that recently emerged. Expect to see considerable writedowns on the value of Mayflower’s MVS business in Germany, and one-off costs across the group.

For investors, it is not simply that there could be more skeletons in the Mayflower closet, it is that, since the troubles appeared last year, an impression has emerged that the company could be dragging its feet over releasing information about its problems. No wonder the shares plunged 20 per cent yesterday.

Other Mayflower units appear to be trading in line with expectations. Indeed, the company has won new contracts worth £50 million, which will kick in this year. And with London’s congestion charge forcing more people on to buses — and other cities looking at the capital’s example with a view to imposing their own scheme — there is scope for expansion here.

However, the North American market, Mayflower’s main focus, was difficult last year and will continue to be so this year. And in the UK Mayflower’s market-leading position will continue to be threatened by competition from bus and coach manufacturers in mainland Europe. The question for investors is: have Mayflower’s shares reached their nadir? Given that more bad news is a significant risk, the answer is probably no. Sell.

Morgan Crucible

MORGAN CRUCIBLE makes a wide range of products for an array of industries, including telecoms and cars, out of carbon, ceramic and magnetic materials. Over the past four years it has been badly burnt by the deteriorating global economy. Unwieldy overheads have also made its problems tougher. Two years ago the group embarked on a restructuring programme that involves closing uncompetitive plants, disposing of non-core businesses and reducing the group’s debt.

Now Warren Knowlton, the sharptalking Yank who was hired last year to shake things up, has unveiled the latest part of the restructuring: a one-for-four rights issue to raise £54 million. The proceeds will accelerate the restructuring and help Morgan to reach a £50 million annualised cost-saving target by 2006.

Unlike Invensys’s rights issue, there is no intention of stopping the disposal programme, but it believes it cannot rely on the proceeds of disposals and wants to break the cycle of constant restructuring.

The results show improvement on the previous year, but the outlook for present trading is cautious. Against this background the rights issue price, a discount of 25 per cent, shows Morgan is far from desperate. The balance sheet has been slowly improving and this is a logical step to take.

It may be hard to repeat last year’s share price leap of 370 per cent but the group trades at a discount to peers such as Cookson and, as the cost-cutting continues, the shares are likely to respond. Buy.

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