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Stabilisation, anybody? UK regional newspaper groups have rallied on the back of encouraging words from Daily Mail and General Trust. Johnston Press, which has lost about 95 per cent of its value in a year and is now worth a princely £39m, jumped 14 per cent. DMGT’s shares bounced four per cent after it claimed to have spotted “signs of stabilisation” in the crucial classified advertising market. Even if its recruitment revenues, down a crushing 55 per cent for the quarter to the end of March, are still falling, the cycle seems to be softening.

DMGT has no idea how much of the advertising lost in the recession has gone for good in the structural shift to the internet. Advertising revenues from Associated Newspapers, home of its national titles, will be down by 24 per cent on the year in the quarter to March, and those of Northcliffe’s regional papers by 37 per cent. Given that advertising traditionally accounts for about half the revenues of national titles and 80 per cent of those of regional titles, the business model needs reinvention. DMGT is, in the interim, hacking back the biggest source of variable cost it can find: headcount. Northcliffe’s workforce is to shrink by a further 500 to 3,500, on top of 500 posts cut in November.

If this is the floor – a big if given late and volatile advertising bookings at the national titles – then DMGT should trough out with earnings of at least £187m in 2009. This implies a price to earnings ratio of 7.3, a 30 per cent discount to the sector. This is harsh, given that business-to-business operating profits now account for more than 60 per cent of the group total and that non-consumer revenues grew 15 per cent in the five months to February, boosted by the stronger dollar. If “signs of stabilisation” multiply, the downside from here should be pretty limited.

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