United Newspapers, publisher of the Daily Express and the Daily Star, surprised some media analysts yesterday, unveiling pre-tax profits of £138.2m, marginally higher than a year earlier, on turnover up 11.6 per cent to £1.01bn, despite higher newsprint costs and the circulation price war. Profits in 1993 were inflated by the £20m United got from selling Extel, the financial information company.

All the same, investors marked down the stock in light trading to 511p, off 11p, confirming persistent concerns about the company's exposure to rising newsprint costs.

But the strengths of United may outweigh its weaknesses to a degree, if yesterday's numbers are anything to gauge by. Following a strategy much liked by analysts, the company has been building its electronic publishing interests, particularly in the US, and concentrating on specialist magazines and its exhibitions operations. These accounted for virtually all the profit gains in 1994, more than making up for the 10 per cent drop in operating profits at the national titles.

UK newspaper groups are scrambling to position themselves in the "new" media, betting on one or another of the technologies in place - cable, CD-ROM, on-line networks, satellite and the like. Some of these groups have paid big premiums to line up small stakes; others have been too slow off the mark, and have seen their fortunes sag in traditional markets.

United looks like being somewhere in between. It has built a good business in the US, and is reviewing its options in multimedia circles in the UK. The board will ask shareholders to approve a name change to United News & Media, to reflect the shift in strategy.

The core newspaper business, which generated 42 per cent of operating profit last year, is the question mark. Paper represents 30 per cent of costs, and prices will rise further.

Most media analysts are looking for modest 1995 pre-tax profits of £140m- £145m, although optimists say the company could easily breach the £150m mark.

Certainly the short-term outlook remains clouded. But if United continues to buy sensibly in new media, the long-term prospects look distinctly brighter.