ELECTRIC WORD (ELE)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

ELECTRIC WORD (ELE): Happy with 41% - May 2007

RHPS Recommendation - SELL

The shares have now been in the portfolio for about 18 months and have delivered a gain of 41%. But Electric Word has made a number of acquisitions during this period, which have somewhat confused the picture and introduced some element of risk. We sold on 18 April.

ELECTRIC WORD (ELE): Profit Margin Widens from 7% to 9% - Apr 2007

RHPS Recommendation - BUY

Boosted by five acquisitions, turnover for 2006 was 72% ahead of 2005. Half of revenue comes from subscribers to whom Electric Word sells other publications, conferences and online services. The operating profit margin increased from 7% to 9% and Electric Word ended the year with almost £1.5m of cash.

ELECTRIC WORD (ELE): Acquires ArkSports - Mar 2007

RHPS Recommendation - BUY

Electric Word has acquired ArkSports Limited, a specialist conference and research business specialising in sport and technology. Results due on 6 March should contain no surprises and I have raised my buy limit to 12p and set a new target of 18p.

ELECTRIC WORD (ELE): "Significant growth" - Jan 2007

RHPS Recommendation - BUY

Electric Word, which specialises in the publication of information for professionals in sport and education, has experienced "significant growth" in its latest financial year. It is benefiting from increased government spending on education, and earnings per share are forecast to jump by 40% this year.

ELECTRIC WORD (ELE): Good Progress - Jul 2006

RHPS Recommendation - BUY

Sharecall: (0906 812 1210): 6194
Electric Word has reported trading is in line with expectations and that good progress is expected for the full year. It is forecast to make earnings per share of 0.55p for the year to November, and 0.79p the following year, on which basis the shares are on a low P/E ratio of 11.

ELECTRIC WORD (ELE): An incentive to perform - May 2006

RHPS Recommendation - BUY

Sharecall: (0906 812 1210) 6194
Electric Word is buying Incentive Plus Limited and Incentive Publishing Limited, for £2.05m. Incentive Plus is a mail order business providing practical materials in the areas of social, emotional and behaviour skills in children and young people. It has its own range of pupil motivational and behavioural materials that are marketed and distributed by Incentive Plus. Electric Word has placed 23m shares at 8.5p to fund the deal. Trading so far this year is in line with its expectations.

ELECTRIC WORD (ELE): Annual results beat forecasts - Mar 2006

RHPS Recommendation - BUY

Annual results beat forecastsand profits are expected to grow rapidly over the next two years as growing subscription revenue falls upon a largely fixed cost base. With £880,000 of cash in the bank Electric Word is sizing up further acquisitions. My new 12-month price target is 15p and my buy limit is 10p.

ELECTRIC WORD (ELE): Beating Forecasts - Jan 2006

RHPS Recommendation - BUY

Sharecall code: 6194
Electric Word has acquired SportBusiness Group Ltd, which publishes a magazine of that name, and provides marketing services and information to the sports industry. Electric Word is paying a maximum of £2.74m and promises that it will immediately boost earnings. Electric Word had previously said that 'results for the year to 30 November 2005 are likely to exceed current market forecasts.'

Newsletter publishing is a business I know well - so follow my advice and buy this dirt-cheap publisher now for 66% gains - Sep 2005

RHPS Recommendation - BUY

'Slumped on my rowing machine, I was in pain. I'd just completed two four-minute intervals with a 5:30-minute recovery at 95% effort. My heart rate was relatively comfortable... but my legs and, in particular, my quadriceps were on fire. I cursed lactic acid, the cause of my pain.' Thrilling stuff, eh! But was lactate the real villain? Apparently not! 'In fact lactate may be one of the most important fuels in the body. Let us banish once and for all the bad publicity that lactic acid has attracted for so long and elevate it to its rightful place as one of the most important of the body's fuels.' Yes, let's! And while we are about it, shall we organise the office Christmas party? Well, okay, so long as we take care to call it a Winter Party, so as not to offend the non-Christians; so long as we serve a vegetarian option so as not to discriminate against Hindus; so long as we invite not just husbands and wives but partners of either sex so as not to upset our gay and lesbian staff; so long as we carry out a risk assessment on the proposed venue; and as long as we 'make clear in advance what type of behaviour is inappropriate and will be treated as a disciplinary matter'. Perhaps we won't bother with a party this year after all...

This information is brought to you courtesy of Peak Performance, 'the research newsletter on stamina, strength and fitness', and the Education Law Update - 'Law made simple for teachers'. They are both published by Electric Word plc, an AIM-listed publisher of newsletters, and are just two of its 49 titles.

Niche titles operating in growth areas

By comparison with the USA, the newsletter medium is underdeveloped in this country, although it enjoys many advantages over news-stand magazines. There is no need for independent distributors, and newsletters can prosper on a low number of subscribers, allowing for the type of specialist content quoted here. And, after all, they do not rely on advertising revenue.

Electric Word was established in 2000 when it acquired Peak Performance, still its biggest seller, and has since grown both organically and through acquisition, with a focus on education and on sports coaching. Both are highly attractive areas, though for different reasons. The Government is committed not only to putting more money into the education sector, but also to devolving responsibility to school staff and administrators. These people must be informed and must prove their 'continuing competence' not only through studying the latest regulations and developments but also through taking specific training courses.

So Electric Word publishes newsletters such as Emotional Literacy Update, Gifted and Talented Update and Headship Matters, and thanks to June's acquisition of Fieldwork Online Training (FOT), it can now offer a suite of online training courses which will allow a school's professional development co-ordinator to track usage and monitor the progress of staff. This is important because a new schools inspection regime, starting in September 2005, will assess a school's ability to self-evaluate and prioritise professional development needs.

A winning business model makes Electric Word a raging buy

The FOT deal brought Electric Word new customers, particularly among English schools abroad, and also provides a channel through which to sell the newsletters. The Sports Division is also developing its business through the online channel. Unlike the education business, which predominantly addresses the UK audience, this has a global opportunity. Already its Peak Performance website (www.peaksports.com) is the second most popular sports science site worldwide, and Electric Word now has 180,000 subscribers to its 'e-zines' (electronic magazines). This is a great platform from which to sell products, and also to attract advertising.

These products can be in the form of newsletter subscriptions, either online or in paper form, or else they can be special reports or invitations to conferences. Last year 72% of revenue came from subscriptions, 20% from the 42 conferences organised during the year and 8% from the sale of one-off reports, such as Shoulder Injuries or Strength Training for Swimmers. Less than 1% of revenue came from advertising income generated by the conferences, but Electric Word's Chief Executive, Julian Turner, told me that the company is now getting 2.5m page impressions on its websites each month, enough to appeal to advertisers. This can now become a new revenue stream.

Even without advertising, the business model is attractive. Titles can be launched quickly and discontinued if they are not working. The writing and editing is subbed out to third parties, and there are numerous opportunities for cross-selling. Back-issue content can be re-used, in the form of special reports. Once publications have been launched the revenue from any new subscriber is pretty much pure profit. The big challenge is to master the trend towards electronic dissemination. This is both a threat to paper-based mediums and also an opportunity. Electric Word has already launched its first exclusively online title, Successful Coaching.

Profits expected to accelerate from here on in

In the first half of 2005, total revenue per subscriber rose by 12% over 2004. The operating profit margin of the Public Sector Management Division rose from 3% to 10% and that of the Sports and Consumer Division from 0.6% to 10%. Impressively, central group costs of £179,000 were no higher than in 2004, although these will probably rise in the short-term as Electric Word is moving into a larger office and investing in sales fulfilment software. Electric Word recorded a profit of £105,000 in the first half, before a charge of £133,000 from amortisation of goodwill, and profits are forecast to accelerate rapidly from here.

The prospects are bright. The opportunities for the Public Sector Management Division are driven by government initiatives and the requirement that public sector employees are properly informed and qualified. The Sports Division has the chance to build an international presence and already has an office in Australia, while interest in sport and training at home will get a boost from London's Olympic Games.

RHPS Verdict: Since you are already reading the country's biggest and best newsletter, you should need no convincing of the merits of this publishing format. Electric Word has been building its business steadily in two highly promising specialist disciplines and, with profitability set to rise rapidly, this is the right time to be buying the shares.

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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