Over recent years, St Ives (SIV) has been using cash generated by its declining book-printing business to expand its higher-margin, higher-growth marketing services division. Not only does the group now boast far better prospects thanks to its exposure to data analytics, digital marketing and consultancy services, but signs are emerging of an unexpected revival in the printed book market. Given the outlook, a derisory rating of nine times forecast earnings and a chunky prospective yield of 4.5 per cent make the shares look a steal.
- Revived growth prospects
- Overseas expansion and acquisitions
- Good forecast yield
- Stabilised books market
- Integration and restructuring risks
- Problems in UK grocery sector
At St Ives' key, high-margin strategic marketing division, mounting demand for data analytics, digital marketing and consultancy helped push organic sales up 4 per cent last year, while acquisitions took overall growth from the division to 28 per cent. Broker N+1 Singer expects revenue to climb 21 per cent there this financial year and forecasts that the division will contribute more than half of group operating profit, up from 46 per cent in 2015. Its predictions are supported by the continued rollout of digital products and tools, greater collaboration between agencies and the recent takeover of a specialist retail property consultancy.
The other divisions also show promise. The marketing communications business, which accounted for 31 per cent of last year's profit, has recently signed up clients such as Adidas, Rolls-Royce and the Ministry of Defence. Meanwhile, the legacy book-printing business, Clays, remains the UK market leader and continues to benefit from reduced competition and more recently a stabilisation in the printed-book market. Clays' strong cash generation is key to financing the group's investments and acquisitions. Moreover, it recently inked a multiyear contract with publisher Penguin Random House that provides excellent revenue visibility. .
Management's emphasis on teamwork continues to pay off, too. For example, HSBC works with six St Ives businesses, and more than 100 clients - including Royal Mail, Carlsberg and Johnson & Johnson - use the services of at least two. St Ives is also pursuing international expansion. Its Incite agency has opened an office in Shanghai and the group recently acquired Solstice, a US-based mobile marketing and technology business. Meanwhile, the increased focus on higher-margin marketing services meant gross margins widened by 1.9 percentage points last year to 33.3 per cent, which helped drive underlying operating profit up 12 per cent to £35.4m.
St Ives does face challenges. Sales dipped in both its books and marketing communications divisions last financial year, the latter due to fierce competition in the UK grocery retail sector. Moreover, the one-off sale of data software and changes in work mix depressed growth in the strategic marketing division.
| ST IVES (SIV) | ||||
|---|---|---|---|---|
| ORD PRICE: | 192p | MARKET VALUE: | £253m | |
| TOUCH: | 193-195p | 12-MONTH HIGH | 200p | LOW: 160p |
| FORWARD DIVIDEND YIELD: | 4.5% | FORWARD PE RATIO: | 9 | |
| NET ASSET VALUE: | 101p* | NET DEBT: | 47% | |
| Year to 31 Jul | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 317 | 25.9 | 15.6 | 6.5 |
| 2014 | 328 | 29.1 | 17.5 | 7.2 |
| 2015 | 345 | 33.0 | 19.8 | 7.8 |
| 2016** | 371 | 36.1 | 21.0 | 8.2 |
| 2017** | 383 | 38.6 | 22.5 | 8.7 |
| % change | +3 | +7 | +7 | +6 |
*Includes intangible assets of £183m, or 139p a share **N+1 Singer forecasts, adjusted PTP and EPS figures | ||||
