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Revenues slip at newspaper group

Print trade remains ‘volatile’ says Trinity’s Fox

Simon Fox: volatile (pic: Terry Murden)

Trinity Mirror saw a further decline in revenue as digital growth failed to offset the decline in print.

In a trading update for the 26 week period to 2 July the publisher of the Daily Record, Daily Mirror and a number of local publications, described the trading environment as “challenging”.

The board anticipates that interim and full year result to be in line with expectations.

“We continue to make progress with our strategy of growing digital display and transactional revenue whilst at the same time tightly managing our cost base to support profits and cash flow with net debt falling in the period,” it said.

Group revenue is expected to fall by 9% on a like for like basis over the period.

Publishing revenue is expected to fall by 10%, with print declining by 12% while digital grew by 5%. Publishing print advertising and circulation revenue fell by 21% and 6% respectively over the period, although the advertising decline was affected by a strong performance over the European Championship in 2016.

Since announcing a £10 million share buyback programme in August 2016, the Group has acquired 6.6 million shares for £6.8 million and has paid £7.5 million to the pension schemes relating to the share buyback programme.

During the period, the group secured a five year print and distribution contract for the Guardian and Observer newspapers from early 2018.

The company said its has continued to make progress on the settlement of civil claims in relation to phone hacking with damages for more than 80% of claims settled.

“However, the lengthy process of settling claims and the structure and quantum of legal fees for the claimants has required the provision for settling these matters to be increased by £7.5 million,” it said.

“Although there remains uncertainty as to how these matters will progress, the board remains confident that the exposures arising from these historical events are manageable and do not undermine the delivery of the group’s strategy.”

Simon Fox, chief executive, said: “The trading environment for print in the first half remained volatile but we remain on course to meet our expectations for the year.

“I anticipate that the second half will show improving revenue momentum as we benefit from initiatives implemented during the first half of the year.”

Reaction

When a stock’s dividend yield is higher than its forward price/earnings ratio (PE), this is usually the market’s way of politely telling analysts that their earnings and dividend forecasts are too optimistic or telling the company that it is dying on its feet, says Russ Mould at AJ Bell.

“Newspaper publisher Trinity Mirror is currently just such a stock – trading on a PE of 2.9 times for 2017 and a dividend yield of 5.7%, a classic warning sign if ever there was one.

“Yet the shares are up 4% even after a first-half trading statement which reveals a 9% drop in sales on a like-for-like basis and that on top of an 8% decline in the same period a year ago.”

Mr Mould, investment director at AJ Bell, adds: “This all seems to fit the widely-held view that print is dying and that Trinity Mirror is going to turn up its toes as well.

“After all, publishing revenue fell 10% in the first half as a healthy 18% increase in digital could not offset a 12% drop in print, while print advertising revenues plunged 21%.

“But the figures were no worse than expected, barring a further £7.5 million in provisions to cover legal bills relating to the phone hacking scandal (which takes the total to £60 million, no small sum compared to the company’s £264 million market cap and pre-tax profit forecasts for the year of £118 million).

“Better still, the balance sheet has relatively little debt, at barely £30 million on a net basis at the end of last year, and even though the £466 million pension deficit remains a heavy burden this mature business is generating plenty of cash – which means that Trinity Mirror could continue to confound the doubters by paying its juicy dividend.

“Whether buying back stock remains a good use of money is open to debate, even if it a sign that management believes the shares are undervalued, and boss Simon Fox and his team must fulfil three goals if they are to convince investors the stock is cheap and not just a value trap:

  • First, they need to keep de-risking the business by reducing debt and the £466 million pension deficit (which remains a heavy burden).
  • Second, they need to show that growth digital revenues can continue to accelerate and more than compensate for the steady decline in print circulation and advertising income. An 18% year-on-year increase in digital display and transactional revenue in the first half offers some grounds for optimism here, but there is much work to do, given that group revenue still fell at that 9% like-for-like rate in the first half.
  • And third, as a result of the first two, that the dividend can be safely paid. For the moment, the signs here are good, since earnings and cash flow cover exceeds six times, although investors clearly still have their doubts that profits and therefore cash flow can be sustained, given the lowly valuation and fat yield.”

 

 

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