It is a good time to revisit the investment case too, because Bloomsbury is due to release results for the six months to end August on Thursday, 24 October. The news is likely to be very positive and could realistically lead to earnings upgrades from some brokers who have taken a cautious view on this year’s earning expectations.
For instance, analyst Malcolm Morgan at broking house Peel Hunt expects the company’s revenues to rise from £98.5m to £102.3m in the current financial year to end February 2013, but adjusted pre-tax profits and EPS to flatline at £11.8m and 12.3p, respectively.
In my opinion, those bottom-of-the-range estimates are at odds with an upbeat first-quarter trading update to the end May when Bloomsbury revealed that revenues rose 19 per cent in the three-month period, helped by a 31 per cent surge in digital revenues. In the adult division, the early success of And the Mountains Echoed by Khaled Hosseini, which was released in May, drove revenues up by over 20 per cent. Interestingly, half of the sales of this title in the period were from e-books, highlighting the growth Bloomsbury is achieving from this increasingly important distribution channel.
e-books driving growth
In the last financial year the company increased e-book sales by over 60 per cent to £9.1m, or the equivalent of 9 per cent of total revenues. But with subscriptions to Bloomsbury's innovative Drama Online hub, a digital resource for academics, students and performers, "significantly ahead of expectations", then it is clear that the momentum in e-commerce revenue streams is growing. In fact, a couple of months ago the company launched another site, Actors and Performers, a professional networking site for the acting community with must-have career information. Authors, casting directors, actors and industry practitioners appear as guest bloggers and contributors to offer advice and insight into the profession. Bloomsbury has also published its first Activity Apps in the Children's & Educational division. These were developed with Shoo Fly, the award winning app developer, and have been included in the Guardian's Top 50 Children's Apps of 2013.
Importantly, there has been decent growth from print titles too. Revenues here rose 16 per cent in the first quarter, buoyed by best-selling titles. These included Paul Hollywood's Bread and How to Bake, which led the continuing strong sales of cookery titles, Wisden Cricketers' Almanack and in the US The Cooked Seed by Anchee Min.
Interestingly, revenues from rights and services shot up by 25 per cent in the first quarter to end May, which not only highlights a strong start to the financial year, but it also means that with this income in the bag the importance of revenues generated from this source in the final quarter of the financial year is likely to be far less significant than in previous years. That mitigates risk and gives me confidence that Peel Hunt’s earnings estimates are too conservative.
Fundamental case supportive
The fundamental case certainly supports the current price as based on Peel Hunt’s bottom-of-the-range and conservative EPS estimate of 12.3p, the shares are still only trading on 12.5 times earnings. There is a decent yield too as Bloomsbury paid out a dividend of 5.5p last financial year and this is expected to rise to 5.7p this year. On that basis, the shares offer a safe looking 3.8 per cent yield more than twice covered by net earnings. A solid and cash rich balance sheet is also supportive. At the end of May, Bloomsbury had a net of cash pile of £8.5m, worth 11.5p a share.
Since then the company has made a smart looking acquisition of Hart Publishing, the Oxford-based legal publisher, from the management shareholders. The initial consideration of £6.5m was paid from Bloomsbury's own cash reserves last month and a further earn-out of up to £500,000 will be payable if certain revenue and title number targets are achieved for the period ending 31 March 2014. The acquisition is expected to generate cost savings and be immediately earnings enhancing, contributing £1.4m of revenue to Bloomsbury in the financial year ending 28 February 2014. Hart generated £2.6m of revenue and £500,000 of profit before tax in the year ended 31 March 2013.
Importantly, the acquisition is consistent with Bloomsbury's strategy to increase its proportion of academic and professional revenues to half of total sales within five years. That’s a sensible strategy to follow since academic and professional revenues are more predictable and have lower related costs of sale with higher margins and are much less reliant on retail bookshop sales. Around half of Hart's revenue is generated outside the UK, thereby diversifying Bloomsbury's revenue stream and offering upside from the global book market. It will also enable the company to further develop e-book publishing and expand its Professional digital suite of services.
Technical set-up
So, not only are the forthcoming financial results likely to reveal positive trends in the business, but the technical set-up also supports further share price upside. Namely, the 14-day relative-strength index (RSI) is positive and, giving a reading of 60, is not yet overbought; the moving average convergence/divergence (MACD) is positive and above its signal line; and the share price is not overextended above the 20-day moving average (around 145p). Reassuringly this short-term trend line has offered strong support on any pull back in the share price in the past three months.
From a charting perspective, and having taken out the August 2012 high of 145p in the recent uptrend, the next major resistance is the 180p highs dating back to the autumn of 2008.
Realistically, an assault on those highs could be in the offing if Bloomsbury’s management team weaves its magic in three weeks time. Ahead of those half-year results on Thursday 24, October, I rate the shares a buy on a bid offer spread of 149p to 151p. I have upgraded my year-end target price to 180p.
Since the start of last week, I have published nine other articles last week on the following companies:
■ Global Energy Developments ('Waiting for pay dirt', 23 September 2013)
■ IQE ('IQE profit-taking presents buying opportunity', 23 September 2013)
■ 32Red ('IQE profit-taking presents buying opportunity', 23 September 2013)
■ Spark Ventures ('Banking on more cash returns', 24 September 2013)
■ Macau Property Opportunities ('Blue sky territory', 24 September 2013)
■ KBC Advanced Technologies ('Riding an earnings upgrade cycle', 24 September 2013)
■ Inland ('Buying opportunity ahead of results', 25 September 2013)
■ US Dog share portfolio ('Easy as pie', 27 September 2013)
■ Conygar ('Shrewd insider buying at a property play', 30 September 2013)
■ Netcall ('Ringing the right tune', 1 October 2013)
■ Eros ('Ringing the right tune', 1 October 2013
Finally, in response to requests from dozens of readers, I have published an article outlining the content of my new book, Stock Picking for Profit: 'Secrets to successful stock picking'
