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Bloomsbury’s recovery potential

The publisher behind JK Rowling's Harry Potter books offers recovery potential in a post Covid-19 environment
May 26, 2020

Bloomsbury Publishing (BMY:211p) continues to accelerate growth of digital revenues and reposition the business from primarily being a consumer publisher to a digital business-to-business (B2B) publisher in the academic and professional information market. Around 80 per cent of the 60,000 books that Bloomsbury has in print are in the academic, professional and special interest category.

The division increased annual pre-tax profits by 85 per cent to £6.7m on a margin of 10 per cent and Bloomsbury’s Digital Resources (BDR) moved into profits for the first time, having lifted revenue by a third to £8.3m. The aim is to maintain that growth rate over the next two financial years to lift BDR revenue to £15m and, with the benefit of margin growth and operational gearing, deliver a profit contribution of £5m. In turn this reduces reliance on consumer titles which last year suffered a £1.8m decline in pre-tax profits to £8.9m, primarily due to the impact of timing and fewer front lines titles from Sarah J Mass.

Coronavirus had little impact on the annual results apart from denting sales in China at the start of 2020. However, the outbreak of the pandemic in the UK, US and Australia certainly has had an impact in the new financial year. Print books account for 79 per cent of revenue and analysts at Peel Hunt have assumed a 70 per cent decline in physical sales of books during April, May and June, perhaps too cautious a prediction given that they only declined 13 per cent during March and April, highlighting greater resilience from online sales channels. The other risk to Bloomsbury’s earnings this year is a potential delay to the autumn academic year.

Sensibly, Bloomsbury has raised £8.4m in a placing, at 223.25p a share, to add to end February 2020 net cash of £31m (39p a share), implemented salary cuts, and applied for government schemes to support staff. Subject to shareholder approval, the final dividend of 6.89p a share will be replaced by a bonus issue. Guidance has been withdrawn, but Peel Hunt expects EPS to decline a third to 9.9p this year, before recovering sharply to 17p in 2021/22.

In the circumstances, the shares have come under pressure since I updated my 2019 Bargain Share Portfolio. The holding was up 27 per cent in early February, but is now 4.5 per cent in the red. However, the long-term rational for holding Bloomsbury’s shares – organic growth in digital resources, deploying cash flow to make earnings enhancing acquisitions, and targeting international growth – has not changed. On a modest price-to-book value of 1.1 times, the shares rate a recovery buy.

Please note that I published two articles at the end of last week, both of which are available on my home page.

 

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Simon Thompson was named 2019 Small Cap Journalist of the year at the 2019 Small Cap Awards.