Investor/An insider's guide to the market: Independent News & Media (INM) is far better known in Ireland for its newspaper titles than it is for its stock market listing. Its market capitalisation of approximately €1.8 billion means that it is much smaller than the Irish exchange's largest stocks such as CRH, AIB and Bank of Ireland.

Nevertheless, it is one of the market's larger mid-capitalisation stocks and, with operations spanning the UK, South Africa and Australasia, it is one of the most geographically diversified Irish-quoted companies. This wide geographical diversity does make it a difficult company to analyse and it must also present some unique management challenges.

Its Australian associate, APN News and Media, recently produced first-half results for 2005, which were in line with market expectations. Profits after tax rose by an impressive 17 per cent compared with the first half of last year.

The year-on-year rate of growth is expected to be slower in the second half but, for the full year, profit growth is expected to be in excess of 10 per cent.

INM holds a 40 per cent stake in APN and, therefore, it is a very important contributor to the group's overall profits. The Australian and New Zealand economies have been doing well in recent years and, although some slowdown is now occurring, the prospects for 2006 are still positive.

APN's trading profits account for 50 per cent of INM's total profits but, when an adjustment is made to take account of its minority stake, the contribution to group profits from Australia drops to about one-third.

This means that, on an underlying basis, Ireland still accounts for very close to one half of the group's total profits.

After a lull in 2002, advertising spend in Ireland has grown rapidly in response to the strong growth of the economy. Advertising revenues are expected to grow by 10 per cent this year, which would make it the third consecutive year of buoyant advertising spend.

A modest slowing in this pace of growth is expected in 2006, although the industry could well receive a boost from the upcoming pot of maturing SSIA money.

The financial institutions, retailers and the motor trade are likely to advertise heavily to persuade consumers/savers to buy their competing products and services.

As well as the specific boost to advertising spend, of which INM will be a major beneficiary, the scale of the SSIA funds is sufficiently large to boost overall economic growth, thus reducing the already remote prospect of a slowdown in the Irish economy in 2006 and 2007.

The UK has long been a problem area for INM due to the difficulties experienced in turning around the loss-making UK Independent titles. The introduction of the compact edition of the UK Independent since October 2003 has led to a sharp improvement in the title's fortunes. Circulation has increased by over 20 per cent and advertising spend is just now beginning to respond positively to the higher circulation.

The newspaper is still operating at a loss but, if the current improving trend continues, it could reach breakeven in 2006.

Reflecting the benefits of its corporate restructuring programme and its improved operational performance, INM's share price has performed well over the past year with a rise of approximately 25 per cent, which is somewhat better than the performance of the ISEQ Overall index.

However, in the early years of the decade the shares underperformed sharply and on a five-year view they have been a poor performer. The issue for investors is whether the share price recovery of the past year can continue into the medium term.

On the basis of relative valuation comparisons, the shares still offer reasonable value. Estimates of INM's 2005 price/earnings (P/E) ratio range around 15 times earnings, which is a little higher than its UK peer group average, but a little lower than the comparable yardsticks in the US and Australia.

Arguably the above average growth prospects in Ireland could justify a P/E significantly higher than afforded UK publishing groups.

However, Investor takes the view that the shares are fairly valued currently and fully reflect the improvement in trading in recent years. The UK market in particular is likely to remain difficult and indeed competitive pressures are intense in all of the group's areas of activity.