Fit to hold

Having bailed on Bloomsbury yesterday, I'm holding Haynes today. Both are publishers facing the familiar challenges as book publishing follows music into the digital future.

First, my biases. Haynes is an old favourite. It was the first company I profiled in my Money Observer Share Sleuth column and it was an inaugural member of the Thrifty 30. The day John Haynes OBE telephoned to point out an error in an article, was a big day for me.

I find it hard to browse the Haynes catalogue without buying a load of books. Not the iconic car manuals. They look great, but like most modern cars mine is complicated and, like most modern drivers, I'm not up to the job of maintaining it. Not the motorsport titles (yawn).

Haynes has a manual for just about every human interest these days. The Royal Marines Fitness: Physical Training Manual is on the list I'm preparing for Father Christmas (look at the reviews).

These are reasons to be wary of everything I say. Liking the product is a good thing, but it can also blind you to certain fundamentals (here's the spreadsheet ).

Haynes has done a good job for investors over the last ten years, compounding shareholder wealth (the combined total of the cumulative dividend since 2002 and the company's net assets owned by shareholders) at 10% a year.

Rather like Bloomsbury, profitability has declined in recent years, but 12% return on equity seems respectable to me given the economic circumstances. Haynes' new chairman, J, son of John, says the company has been focusing on financial management during the recession but is emerging with a renewed operational focus now, employing front-facing display stands in retailers, and developing the Haynes Manual Online platform (it's launching 50 of its most popular US motor manuals online this year).

Front facing display stands may not seem like a big deal, but people do judge books by their covers, and the Haynes covers are fabulous.

The DuPont chart tells the same story, although the scales aren't particularly helpful! Of the three components of return on equity, profit margins and asset turnover have taken modest hits, but at least the company hasn't resorted to taking on debt to boost return on equity.

I have the same problems appraising Haynes as appraising Bloomsbury, the past will not resemble the future as car maintenance is increasingly done by professional mechanics and readers switch to eBooks.

That's why I think buying Vivid in the depths of the credit crunch was such a smart move for Haynes. Vivid, based in Holland, claims to be the leading supplier of European technical information to garages and workshops in electronic form. This year, its managing director Alex Kwarts has been promoted to the main Haynes board. It means Haynes is both an IT company and a publisher, which I think all publishers need to be. It also means Haynes is supplying car schematics, whoever services your car. And finally it extended Haynes core business from its English-speaking markets into Europe, and potentially wherever European languages are spoken.

Although the unpredictability of publishing is unnerving, it seems to me Haynes has positioned itself as well as any company could for change.

The pension fund is a blot on Haynes' otherwise impeccable balance sheet. The total obligation of ''33m is perilously close to the total market value of the company (''37m). The good news is the company has restructured the biggest of its pensions schemes, the ''25m UK scheme, increasing contribution rates. The bad news is the scheme is still open.

So why Haynes and not Bloomsbury? Partly it's familiarity, Haynes acquisition of Vivid seems more concrete than Bloomsbury's 'One Bloomsbury' restructuring and the pace of change in Haynes' corner or the market, large format graphic intensive books, seems slower than in general fiction and non-fiction, Bloomsbury's staple.

But it's mostly about value. Haynes' return on equity is holding up better than Bloomsbury's. Assuming Haynes can maintain current levels of profitability (12%) a Price to book value of 0.9 implies an earnings yield of 13%, which is good enough for me. It's ten year average ROE, which, as in the case of Bloomsbury I'm ignoring, is 14%. That's an earnings yield of 16%.