Collins Stewart’s Gareth Thomas has initiated coverage on United Business Media with a ‘sell’ recommendation, saying that the company’s cyclical business presents a risk.

Its PR newswire is a core revenue contributor, around 18% in 2007 with most of this coming from the US.

Thomas says that during the last downturn 2001-2003 US message volumes fell for three consecutive years: by 14%, 11% and 4% respectively, and while the impact is not expected to be so severe this time round, he expects the current slowdown to hit the division. ‘As corporate earnings come under pressure there may be some selling down by companies to cheaper news distribution products,’ he says.

The reduction of M&A deals is also likely to lead to lower news output, with May set to be the worst month for deals since February 2004, while IPOs are also falling. The majority of print revenues, which make up 28% of the company total, also come from advertising – another area set to be impacted by weaker market sentiment.

The shares currently trade at 609p but Thomas has set a 570p target price, representing a 6% discount.

by Susanna Twidale