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INM success fuelled by global strategy

MATCH this: an Irish share that is yielding 4.5 per cent; an Irish share which has shown 19.75 per cent growth over recent years; an Irish share which has fully benefited from the Celtic Tiger; but an Irish share which is not dependent on the Irish economy.

Enter Independent News & Media, often the company that Ireland's rival media love to hate.

For over a decade, opponents have gloated that the group will be damaged by a decline in the newspaper industry; they have bitched that the balance sheet is overgeared; they have prematurely rejoiced that it has paid too much for acquisitions overseas; they have agitated that exceptional items in the accounts appear too frequently; they have overdosed in the knowledge that the UK Independent and Belfast Telegraph figures remain flat. They have been indefatigable in their hopes that the media group will meet its comeuppance.

They are still waiting.

Last week, once again, the Indo produced figures in line with the market's highest hopes. Yet Wednesday's press conference in London was a surprisingly low-key affair.

Gavin O'Reilly, the chief operations officer, took the media through the figures with the panache and confidence of a boss who knew he had delivered.

Six reporters were present - on the telephone. Only one question was asked, a pretty inoffensive query: Arthur Beesley of the Irish Times enquired about the new, but not earth-shattering venture - Cashcade, a leading UK online gaming company.

Question time was over in less than two minutes, the media apparently dazzled by the results, retired to bellyache in private!

Year after year, since Sir Anthony O'Reilly took over at the Indo, the group has delivered to shareholders. The success is almost monotonous. Cumulatively, according to chief financial officer Donal Buggy, ?1,000 invested at the O'Reilly takeover in 1973 would today be worth ?420,000. Shareholders have made a mint.

It is an easy cheap shot to spot the odd blemish in a global media empire. It is impossible to argue with the profits of Independent News & Media over that period.

What is the reason for the group's success?

It is certainly not luck. Challengers have come and gone. Other competitors have remained stagnant.

The global nature of INM's earnings is surely its strength? Tony O'Reilly has exploited an enviable knack of targeting the right geographical zones with an uncanny anticipation of future trends. It was he who decided to hit Australia and New Zealand. It was he who had the contacts and the prescience to head for South Africa.

While others were predicting long periods of political instability after the apartheid regime ended, O'Reilly was backing Nelson Mandela's ability to guide the potentially explosive nation to economic expansion.

It was a move few others dared to make at the time.

Last week, the results of such a bold move were clear. Operating profits from South Africa came in ahead of 2004 by 35 per cent. Revenues from advertising there reached double-digit growth. From small beginnings, the nation which others dismissed as a basket case is already contributing close to 15 per cent of the Indo's profits.

So is India the next South Africa?

The CEO spotted India as the next growth area several years ago. The group's decision to take the plunge in India has been met with almost instant success. Buying a 26 per cent stake in Indian media group JPL for ?28m was a classic case of an O'Reilly taking the ball on the bounce. The Indo has bought into a fast-growing market. JPL did an IPO within months of its purchase; the value of the Indo stake doubled to ?55m overnight. It now has a significant stake in Indian newspaper Dainik Jagran, read by 21.2 million people a day.

The Indo's global ambitions have been satisfied with staggering success. It has managed to avoid the trouble spots of South America, the temptations of Russia and the pitfalls of the stagnant economies of Europe, such as France and Germany. The Indo spurned the high costs associated with the rigid structures of old Europe.

High costs seem to be the consistent target of the group, which is unapologetic in its resonances of Ryanair when it states an ambition to be the low-cost operator of the media world.

So far it has been successful, although there are still more commonsense competitive measures in the pipeline. That is probably why it has managed to outperform its peers in the cut-throat media sector.

So is this why Denis O'Brien, a controversial investor, decided to buy 3 per cent of the Indo? Or is he simply up to mischief?

The idea of mischief may not be far away from Denis's mind but nobody - however rich - throws ?60m away in a fit of pique, or even for their own amusement. It is far more likely that O'Brien had a spare ?60m looking for a home. He spotted a stock with a yield of over 4 per cent, almost unique these days. He spotted a stock with a proven track record since Sir Anthony took over. He spotted a stock with a commitment to low-cost operations, with exciting global earnings and an unparalleled ability to expand into countries with growing markets and political stability.

Which begs the question: is Denis a disciple of Sir Anthony? A secret admirer who is chasing a 4.5 per cent yield? (A better yield than he will get from his beloved BoI, either on deposit or from shares.)

Denis holds ?4.5m worth of shares in the Bank of Ireland. Let us hope that no one on the BoI court, where Denis is deputy governor, notices that he believes his ?60m holding in Ireland's most successful media group will enrich him faster than his paltry ?4.5m in Ireland's oldest bank.

I must admit to some sympathy with Denis's preference for INM over Bank of Ireland. I too only hold two Irish publicly quoted shares in meaningful numbers. Quite coincidentally, I share Denis's preference for INM over Bank of Ireland. As a holder of INM in the ratio of two-to-one over BoI, I wondered if I was showing too great a preference for the home team.

I should not have worried. Denis has put 14 times as much of his riches into INM as into Bank of Ireland.