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MONTECITO RESEARCH SHARPLY LOWERS EARNINGS EXPECTATIONS FOR VALASSIS; FORECASTS EXTENSIVE LOSSES FOR SULLIVAN MARKETING

 SANDPOINT, Idaho, July 20 /PRNewswire/ -- Montecito Research has published a new investment research report forecasting sharply lower earnings for Valassis Communications Inc. (NYSE: VCI) and substantial losses for their competitor, Sullivan Marketing.
 However, the report recommends purchase of Valassis' stock, believing that Sullivan cannot survive. Sullivan's withdrawal would remove excess capacity in the free standing insert business and lead to normal levels of industry profitability.
 Clive Munro, analyst with Montecito Research, cautioned investors that earnings estimates on Valassis for June 1994 remain unrealistically high, ranging from $0.60 to $1.40. "We are forecasting earnings of just $0.15." Nonetheless, he anticipates calendar 1995 earnings of $2.00 and believes that investors will achieve a total return of 100 percent within 18 months.
 The report devotes more than six pages to a financial analysis of Sullivan Marketing, forecasting cash flow losses during 1993 of almost $16 million, and cumulative losses approaching $40 million by this time next year. "At the page volumes and pricing levels anticipated, we forecast that Sullivan's cash outflow during the first half of calendar 1994 will total $22 million while Valassis remains cash flow positive even under our worst pricing assumptions," commented Munro.
 Valassis, valued at $600 million, controls 50 percent of the 1.3 billion free standing insert business. Munro's enthusiasm stems from several characteristics: "Valassis is the low cost producer. Repeat customers account for more than 90 percent of revenues. Pre-tax return on net tangible assets exceeds 200 percent and, in a typical year, the company generates more than $100 million in free cash flow after tax or $2.30 per share." On Monday, the stock closed at $13 3/4.
 "Sullivan's entry has expanded capacity by 26 percent and pricing has fallen sharply. It's a phenomenon that seems to occur in this business intermittently and culminates typically in withdrawal of the weakest player." Munro would not forecast when Sullivan might withdraw but said it could be as early as December. "Unless their page volumes improve dramatically, we believe the company will be facing huge losses in January 1994 and they might decide to call it quits."
 -0- 7/20/93
 /CONTACT: Clive Munro of Montecito Research, 208-265-2333/
 (VCI)


CO: Montecito Research; Valassis Communications Inc.; Sullivan
 Marketing ST: Idaho IN: FIN SU: ERP


LM-JH -- SE006 -- 6573 07/20/93 08:41 EDT
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Publication:PR Newswire
Date:Jul 20, 1993
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