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Connect’s new ventures deliver as big news contract gets renewed

Successful new ventures and a resilient performance from the core news business sent first-half pre-tax profit at Connect Group up more than a third
April 19, 2016

The recent closure of the Independent newspaper served as another reminder of the bleak prospects for print media. But Connect Group’s (CNCT) core news distribution business continues to show resilience, with a 2 per cent dip in first-half sales better than the roughly 4 per cent annual fall forecast by management.

IC TIP: Buy at 152p

Chief executive Mark Cashmore is confident that print is here to stay. Given that Connect has just tied up annual revenues of £83m until 2021 by renewing its contract with Daily Express and Daily Star newspaper publisher Northern & Shell, his optimism is backed by some evidence.

Meanwhile, new ventures continued to shine. While Connect’s click-and-collect offering prospered from a busy Christmas trading period and big agreements with Asos and Amazon, the parcel freight arm gobbled up market share. Divisional sales soared 12 per cent to £82m as irregular-shaped-packaging specialist Tuffnells attracted more than 400 net new accounts with annualised revenues of £5m. Driving this success was the nation's growing need to mail odd-sized parcels, and a lack of competition.

Click here to watch our recent site visit to a Tuffnells depot.

Net debt, which rose slightly in the period due to stock building in preparation for European Championship sticker collections, remains a concern, particularly as the national living wage has now come into effect. However, management is confident that further savings from the cash-generative news business will prove decisive.

Broker Liberum expects adjusted pre-tax profit of £61.1m for the full year, giving adjusted EPS of 19.5p (FY2015: £56.5m and 19p).

 

CONNECT (CNCT)
ORD PRICE:152pMARKET VALUE:£ 375m
TOUCH:152-154p12-MONTH HIGH:175pLOW: 130
DIVIDEND YIELD:6.1%PE RATIO:14
NET ASSET VALUE:4p*NET DEBT:£160.9m

Half-year to 29 FebTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201591014.14.62.90
201694819.26.33.00
% change+4+36+37+3

Ex-div:09 Jun

Payment:08 Jul

*Includes intangible assets of £169m, or 68p a share