Reed Elsevier: Announces higher journal price increases than expected

["Okerson, Ann" <ann.okerson@yale.edu>]

Of possible interest to readers, the comments of analysts at BNP 
Paribas (one of Europe's largest banks).  Forwarded with 
permission.

________________________________________
From: Sami Kassab [sami.kassab@exanebnpparibas.com]
Sent: Friday, August 07, 2009 3:49 AM
Subject: Reed Elsevier (-): Announces higher journal price increases than expected

Hello, please find enclosed a comment on Reed Elsevier (-) 
announcement regarding its 2010 science journal pricing 
announcement:

*Reed Elsevier has announced its 2010 journal price increases 
Elsevier has just published its 2010 print journal price list. We 
estimate the median price increases at 5% with key titles such as 
The Lancet up 9.5% and Cell Press up 4%. While these price 
increases only pertain to print-only subscriptions (c 10% of 
divisional revenues), we believe they suggest that Elsevier has 
maintained an aggressive pricing policy despite current library 
budget constraints. Its main competitor, Springer, also announced 
a 5% price increase for 2010.

* More aggressive pricing than expected

Given library budget pressure, we have assumed 2010 net price 
increases of 3% in our model (0% for 2010 subscription renewals 
and 5% for existing contracts), resulting in -1% Elsevier's 
organic revenue decline in 2010. As is the case elsewhere in 
Media, listed prices increases can vary considerably from net 
price increases due to significant discounts. We expect pressure 
on Elsevier's discounts and renewal rates to be under pressure in 
the coming months.  We maintain our 2010 organic revenue growth 
forecasts for Elsevier but they now look conservative.

* Open Access is putting pressure on pricing

We see Elsevier's decision to cuts prices for its nuclear physics 
journals by 20% as a reflection of the progress of Open Access, 
which prevails in this discipline. Should Open Access reach 
critical mass in other disciplines, similar pricing pressure is 
likely. With the FRPAA act likely to pass in the US, Open Access 
will continue to grow.

* Cautious view maintained

We continue to believe the stock could remain 'dead money' until 
further clarification of the new investment budget and 2010 
top-line trends. While we would close short positions, we 
continue to prefer Pearson (+) and Wolters Kluwer (-) in 
publishing.


Sami Kassab
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