Go back to 2009’s recession and St Ives (SIV), which boasts a long history in such areas of the publishing market as book production, was struggling. Fresh thinking increasingly looked needed to turn the business around and, as 2009 progressed, the arrival of a new management team provided just that. Under new chief executive Patrick Martell, appointed in April 2009, St Ives began refocusing away from low-margin print business and towards higher-margin consultancy-style marketing services. It’s a strategy that’s delivering results but, judging by the group's modest share price rating, the market has barely begun to give St Ives the credit.
- Marketing services focus offers promise
- Exiting lower margin print business
- Fat dividend yield
- Modest share price rating compared to peers
- Revenues still falling
- Investment likely to slow earnings growth
That new strategy kicked off with efforts to knock the print business into shape. During 2009, both the Dutch and US businesses were sold, followed by site closures and the disposal in 2011 of the magazine business for £20m. More recently, the group has also exited the markets for printed company reports and DVD/CD inserts. And, in 2010, the first steps towards building a marketing services operation began to take place, with the acquisition of database marketing services company, Occam DM.
But it wasn’t until 2011 that the strategy really started motoring. During that year, St Ives bought a 90 per cent slice of field sales and marketing group, Tactical Solutions, followed by the acquisitions of digital and marketing services business, Response One, and retail and consumer consultancy operation, Pragma. It then took a 15.75 per cent stake in ebook conversion software specialist, The Evolved Group. In 2012, St Ives snapped-up research consultancy, Incite Marketing Planning and then invested £1.5m in mobile marketing solutions group, Sponge. St Ives has been busy this year, too - it bought marketing and technology consultancy, Amaze, in March and then acquired digital marketing agency, Branded3 Search, last month.
ST IVES (SIV) | ||||
|---|---|---|---|---|
| ORD PRICE: | 142p | MARKET VALUE: | £172m | |
| TOUCH: | 141-142p | 12-MONTH HIGH/LOW: | 168p | 68p |
| FWD DIVIDEND YIELD: | 4.7% | FWD PE RATIO: | 8 | |
| NET ASSET VALUE: | 122p* | NET DEBT: | 5% | |
| Year to end-July | Turnover (£m) | Adj. pre-tax profit (£m) | Adj. earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 291 | 17.8 | 11.8 | 3.50 |
| 2011 | 297 | 20.9 | 14.5 | 5.25 |
| 2012 | 327 | 24.2 | 15.6 | 5.75 |
| 2013* | 316 | 26.7 | 16.8 | 6.25 |
| 2014* | 321 | 28.9 | 18.3 | 6.70 |
| % change | +1 | +8 | +9 | +7 |
*Includes intangible assets of £96m or 79p per share **Numis Securities estimates Normal market size: 2,000 Matched bargain trading Beta: 0.63 | ||||
The results are beginning to shine though and, at the half-year stage, marketing services generated 31 per cent of underlying profit, at £3.8m, up from 20 per cent a year earlier. That’s expected to reach about 40 per cent in 2014. Moreover, a trading update this month, covering the 17 weeks to 31 May, revealed further progress. Revenue from marketing services, for instance, rose 30 per cent with underlying profit described as "significantly ahead".
After restructuring efforts in recent years, the print operation, which still generates about 80 per cent of group revenue, isn't in such bad shape, either. The book printing business is successfully coping with the impact of reducing print-run lengths and more frequent reprints through a focus digital technology and cost savings. Meanwhile the division's exhibition and events arm was described as having "performed well" in the trading update, although the direct mail business is experiencing downward pressure on prices. Overall, the group appears to have stabilised the print business and half-year operating profit was off just 3 per cent at £8.5m.
True, exiting unprofitable print businesses does mean that revenue isn't expected to begin growing until next year. In the 17 weeks to end-May, group revenue fell 4 per cent year-on-year after print revenue dropped 10 per cent. Investment in the market services-led growth strategy is also likely to hold back shorter-term earnings growth. Broker Numis Securities, for instance, cut its end-July 2014 earnings estimate by 0.5p this month, to 18.3p, to reflect that.
