David Montgomery is widely remembered for his tempestuous and controversial tenure as chief executive of the Mirror Group back in the 1990s but in the past year and half the newspaperman has reinvented himself with Mecom. The new company, where he is executive chairman, is an attempt to replicate the Johnston Press model across northern Europe, buying up regional publishers in an unconsolidated market, extracting synergies, cutting costs, and running what were essentially sleepy family-run businesses along UK lines. This might sound familiar to former Mirror employees but Montgomery insists that the cost-cutting is limited to back office and sales functions as he cuts a swath across Europe.

A dizzying series of transactions leave Mecom operating in five countries: Denmark, Norway, Poland, the Netherlands, and Germany. The group as an operating company of scale has barely been in existence a year, and Mecom is also in the process of buying out another Dutch publisher, Wegener, which will fortify its position in the south of the country. Only in Germany, where Mecom owns the Berliner Verlag, is the business obviously subscale, although for the moment the plan is to go easy on the acquisitions while bedding down.

The theoretical argument is pretty compelling. Underlying margins, according to interim results, are now 10.3 per cent — on a like-for-like basis (assuming all the acquistions were wholly owned a year ago were 8.7 per cent).

The plan is to lift that figure to 15 per cent in 2008, and beyond that afterwards, and with Montgomery’s track record in cost control, few doubt that this kind of improvement can be achieved. What isn’t so clear is how far profitability can be taken beyond that, although with the Netherlands already at 23.2 per cent, more can be done.

However, execution is a little more complex. Denmark, Mecom’s largest single market, has proved tough. Margins are only 6.9 per cent and a softening property market and intense freesheet competition — two new launches in a market with two players in already — have dampened progress.

Denmark is not going to grow as fast as hoped, and Montgomery has brought in long-time ally, John Allwood, to restructure the business, centralising office locations. Cutting costs at Urban, its freesheet, should help deliver, but real progress could depend on whether one of the two invaders give in. That could take time — by which another problem could emerge elsewhere.

On current forecasts, Mecom is trading at around 15.7 times 2008 earnings, although that’s before the Wegener deal in the Netherlands. Add in Wegener, the multiple drops to 14.2 times, assuming Mecom pays out half cash and half shares (it gets better if more cash is paid).

That places Mecom at a premium to the 10-11 times seen by UK newspaper groups, but below the 17 times that Europeans, including Independent News & Media achieve. Mecom’s anticipated profit growth, and potentially mid-single digit sales growth (Poland in particular is virgin territory) coupled with more acquisitions, should help generate long-term improvement.

Yesterday’s 80p is not outrageously cheap, but worries about Denmark look a little over-done. If Mecom traded in line with European rivals, it would be more like 95p; there should be a little upside from here. That makes the shares worth buying, particuarly on a long-view.

Savills

Half-year figures out yesterday from Savills, the commercial and high-end residental property agency, spoke volumes about the health of the market until July. Its revenues rose 35 per cent to £284.2 million, triggering a 27 per cent rise in underlying pre-tax profits to £32.5 million. But the outlook for the second half is less certain.

Aubrey Adams, chief executive, said that potential buyers of City offices were sitting on their hands, waiting for a price adjustment that could be as a much as 10 per cent over the coming months. If prime City offices were selling on yields of 4.5 per cent, they could slip back to 5 per cent, back to where they were 18 months ago.

Once prices adjust, deal volumes should pick up — but the question is when. In America, where Savills has bought a new office, the company has seen commercial transaction volumes affected because of tightening credit. Asian business continues to grow, however.

Savills shares fell 21p yesterday to 439p — far off from this year’s high of 727p before fears over property first materialised.

Savills’ exposure to top-end commercial and residential property means that when times are good its shares outperform, but in harder times the descent can be sharp. Divisional profits at Savills’ fund management unit meanwhile hit £2.1 million, up from £100,000 a year ago, offering a cushion of steady income. A quick fall in office prices may be bad news for developers, but if that kickstarts deal-flow, agents such as Savills will prosper. Hold.

JJB Sports

The management at JJB Sports will be praying England beat Russia at Wembley tonight. Euro qualification could be a life-line for JJB. Updating on trading for the first half to the end of July, JJB warned that annual profits could be as much as 25 per cent short of forecasts. Blame was directed at a dismal summer and a fall in demand for England replica kits where like-for-like comparisons were also tough because of the 2006 World Cup. Overall like-for-like sales, including retail stores and health clubs were down 4.4 per cent. Same store sales for retail fell 6.2 per cent.

Stripping out replica shirts and same-store retail sales fell 1.3 per cent suggesting that JJB’s injury woes can not simply be put down to football. An England win may help but yesterday’s update provides little comfort for JJB’s ability to deal with bigger national upsets for the country, such as a downturn in consumer spending. JJB shares fell 18½p. Sell ahead of further injuries.

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