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DMGT and the malaise that won't go away

Daily Mail & General Trust saw print ad revenues nosedive in April and May
June 1, 2020 and Mark Robinson

Coronavirus has hit the Daily Mail & General Trust (DMGT) hard, exacerbating the structural problems of a print advertising sector struggling to adapt to an evolving commercial landscape. The venerable media group – which owns the eponymous tabloid as well as the i and the Metro titles – saw revenues for its consumer media business drop by a third in April, stemming largely from a 69 per cent reduction in print advertising sales. Digital advertising revenues also slumped, although rather less dramatically at 16 per cent, a rate of decline also broadly in line with the overall drop in circulation.

IC TIP: Hold at 716p

Inevitably, given the acceleration of the disease, the figures for April were predictably dire. But numbers for the six months to March 2020 were no more reassuring, with circulation down by 5 per cent, and a substantial reduction in demand for print ads, which was only partly mitigated by a 15 per cent increase in underlying digital revenue. At any rate, the gradual swing towards digital channels has negative implications for unit profitability. The group revealed that the cash operating income margin – a pointer to underlying cash generation – decreased by two percentage points to 11 per cent.

There is a synergistic relationship between gross domestic product (GDP) and ad spend, from which many papers derive most of their revenues outside of subscriptions and newsstand sales. But commercial conditions are wholly abnormal at present, so it would be unwise to place too much emphasis on the group's trading patterns beyond the first quarter – one-off effects predominate. There will be a sizeable dent in full-year figures because the group events and exhibitions business has been forced to either cancel or postpone all events scheduled from March through to August, while the hiatus in the UK property market will also have a negative impact on financial performance.

Shareholders can derive some succour from the digital performance, which also forms part of a wider trend. Market analysis from SimilarWeb reveals that the Daily Mail website is ranked 10th in the global news and media sector in terms of site traffic, with 72.6 per cent of those visits emanating from the UK and the  US. Only the BBC attracts more visits in the domestic sphere. The challenge is how to transform that traffic into profits and cash flow when general advertising rates are falling, and around two-thirds of digital advertising spend is destined for Google, Facebook, YouTube and Instagram.

The dominant position of the social media giants (and their underlying algorithms) presents the main challenge to other online media businesses seeking to leverage their traffic numbers. Increased recourse to digital analytics and targeted advertising are rendering conventional agency-based approaches redundant. Unless something is done to loosen the grip of Google and its ilk, conventional media organisations will be chasing a diminishing pool of advertisers at reduced unit margins.

“A successful publishing business in the future is one that is reliant on subscription and reader revenue,” says Alice Pickthall, senior analyst at Enders Analysis. Take the New York Times Company (US:NYT), which saw overall revenue nudge up during its first quarter, despite ad revenues dropping by 15 per cent. This was on the back of its highest-ever number of new net subscriptions. Although many media organisations have reported a marked increase in online traffic and related subscriptions during the lockdown, it is difficult to gauge whether this, too, is simply a temporary effect. 

DAILY MAIL AND GENERAL TRUST (DMGT) 
ORD PRICE:716pMARKET VALUE:£1.51bn
TOUCH:715-718p12-MONTH HIGH:897pLOW: 538p
DIVIDEND YIELD:3.4%PE RATIO:12
NET ASSET VALUE:522p*NET CASH:£201m**
Half-year to 31 MarchTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201968750.213.47.30
202068380.132.57.50
% change-1+60+143+3
Ex-div:04 Jun   
Payment:26 Jun   
*Includes intangible assets of £355m, or 169p a share. **Includes lease liabilities of £73.7m.