Reuters

[tucker]

Dear RainFrog Partners,

I have attached two pieces of investment research to this email. The first is on Advanced Environmental Recycling Technologies (AERTA), and I think the document is fairly self-explanatory. The second is on Reuters Group (RTRSY). I have explained a bit more about this second document below.

As most of you will know, Reuters is a major media corporation based in the UK. In general I believe that news, i.e. getting information to people, is an ethical thing to invest in. Although Reuters supplies wire service to mass media outlets worldwide, most of the company’s revenues come from the dissemination of financial news. As investors we rely on Reuter’s products every day. Most SRI investors argue that it is ethical to invest in the companies whose products we use. For these reasons I have been following Reuters for some time.

The attached document is an investment analysis of Reuters prepared by Standard & Poors. I think it clearly presents the investment issues surrounding the company, so I have included it in its entirety. Because this is a proprietary report I am not going to post it to our discussion site at http://www.j-talk.com/community/rainfrog/forum/ with the AERTA research. However, I will create a discussion forum for the company there, and I will seed it with this email.

There are two additional points that may be worth mentioning with regard to Reuters. The first is a valuation issue. Analysts expect Reuters to grow at 20% annually over the next five years. Moreover, the stock pays a healthy dividend of 2.42%. Given this dividend and rate of earnings growth, and assuming and industry P/E of 19.5, Reuters could be fairly priced as high as $56.56 per share. This is considerably higher than the Standard & Poors 1-year price goal of $47. However, the $56 estimate may not adequately consider the risks associated with the company’s recent restructuring. If restructuring costs more or takes longer than currently expected (and it has already cost more and taken longer that originally expected), earnings will suffer.

Second, RTRSY had quite a week last week. In fact, in the past two weeks the stock has shot from under $39 to over $45. In terms of value, Reuters may still look like a good play, but in technical terms it does not. RSI is now close to 90, which suggests that a strong pullback is in order. We may wish to authorize an investment in Reuters, and we might even wish to authorize at the current price, but even so it might be wise to wait for the price to fall back a little before executing.

If anyone has any questions on the above, please don’t hesitate to email. I hope to have the May ballot and one more research report out tomorrow.

Tucker