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OPINION

Worth a read

Worth a read
July 15, 2014
Worth a read
IC TIP: Buy at 173p

The company has just released a trading statement for the first three months of the financial year, a traditionally quiet period as revenues and profits are skewed to the second half and the key Christmas trading period, in particular. Expect the same bias this year too.

In the latest three months trading to end May 2014, a period during which the company makes the smallest profit in its fiscal year, the company reported that revenues in its academic and professional, and children’s and educational segments were all ahead year-on-year. As expected the adult division faced stiff comparatives following an exceptionally strong trading period in 2013. This resulted in Bloomsbury’s total quarterly revenues declining 9 per cent on last year, although it’s well worth noting that they were still 7 per cent up on the same period in 2012.

I am not concerned by this at all and neither are investors as the shares are little changed post the announcement. Moreover, assuming the company can grow pre-tax profits by around 6 per cent to £13.9m in the current fiscal year to February 2015, then after factoring in a modest rise in sales from £110m to £113m, this will generate EPS of 14.4p. On this basis, the forward PE ratio is only 12. Analysts forecast a further rise in the payout to 6.1p, more than twice covered by net earnings, up from 5.8p in the year to end February 2014. On this basis, the prospective dividend yield is attractive at 3.5 per cent. And after factoring in goodwill on acquisitions, and intangibles on the balance sheet, the shares still only trade on 1.1 times book value which is hardly excessive either.

Indeed, a rock-solid cash-rich balance sheet is highly supportive of the investment case as Bloomsbury still had net cash of £2.9m on its balance sheet at the end of June 2014. That’s after paying out final instalments of £1.9m on the acquisitions of Fairchild Books and Applied Visual Arts Publishing. Both deals should underpin the aforementioned analyst forecasts as Bloomsbury continues to grow its academic and professional publishing businesses to diversify its revenue streams.

These bolt-on purchases follow on from the larger £6.7m acquisition of Oxford-based legal publisher Hart Publishing. Around half of Hart's revenue is generated outside the UK, thereby reducing Bloomsbury's overall exposure to the UK book market. The acquisition will also enable the further development of Hart's e-book catalogue and expands the company’s professional digital range of services for lawyers and accountants. The plan is to increase the contribution from the academic and professional segment to half of the company's total sales by 2019, a sensible approach given revenues are more predictable, have lower related costs of sale with higher margins, and are much less reliant on retail bookshop sales.

I am also heartened by Bloomsbury’s increased spend on online platforms. Digital revenue now accounts for 12 per cent of the total, and rising. Indeed, it's the ongoing growth in e-books, online digital platforms and a higher contribution from higher-margin academic and professional publishing businesses which makes Bloomsbury’s current rating attractive. In May, the company launched Bloomsbury Collections, an academic e-book platform that will have 3,500 titles by the end of this year. The company also has a strong publishing programme including new titles from Margaret Atwood, Tom Kerridge and Paul Hollywood as well as a year-long Harry Potter marketing campaign to promote the newly illustrated series. In the US, Roz Chast's Can't We Talk About Something More Pleasant? has been at number one on the New York Times graphic novel best-seller list for six weeks.

In the circumstances, I still feel that Bloomsbury's shares are worth buying on a bid-offer spread of 170p to 173p, and maintain a fair value target price of 210p.

■ Simon Thompson's new book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.75 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stock-picking'