- Pre-tax profit estimates raised 31 per cent
- Net cash likely to exceed £60mn
- Prodigious free cash flow generation
Bloomsbury Publishing (BMY: 544p) has materially raised guidance for the 2023-24 financial year, the second time in as many months. The news sent the share price to a record high of 540p, or 135 per cent higher than the 229p entry point in my 2019 Bargain Share Portfolio. The re-rating has further to run.
In fact, house broker Investec has upgraded its annual pre-tax profit and EPS estimates by an eye-catching 31 per cent to £48.1mn and 46.4p, respectively, representing more than 50 per cent growth on the previous year.
Moreover, buoyed by 19 per cent higher free cash flow (FCF) per share of 30.8p, net cash is forecast to swell 25 per cent to £64.3mn (79p), enabling the board to support further organic growth investment in content, expand the group’s academic publishing arm and maintain a progressive dividend. Bloomsbury has paid out 52.9p a share in the past five years and Investec expect a 5 per cent hike to 12.3p in the full-year dividend. On this basis, the shares are priced on a price/earnings (PE) ratio of 11.6 and offer a 2.3 per cent dividend yield.
Fantasy fiction over-delivers
Bloomsbury’s consumer division has been a key driver behind the outperformance, buoyed by Sarah J. Maas’ best-selling novel, House of Flame and Shadow. The book’s popularity has also driven demand for her backlist of 15 books, all of which have been published by Bloomsbury. It highlights the global popularity of fantasy fiction and the sci-fi genre, a segment of the book market that has grown by more than 50 per cent in the past five years, according to Nielsen Bookscan.
Other bestselling authors in the category include Samantha Shannon, Alan Moore and Cixin Liu, whose Three Body Problem trilogy film adaptation, produced by Game of Thrones’ David Benioff and D.B. Weiss, is being released by Netflix on 21 March. Not surprisingly, Bloomsbury is investing further in fantasy writing.
The uncanny ability of Bloomsbury’s publishing team to back the right authors is highlighted by other best sellers including Katherine Rundell’s Impossible Creatures, a top seller in the UK, Ghosts, the companion book to the BBC smash hit television series, and Harry Potter Wizarding Almanac, the official companion to J.K. Rowling’s books.
It’s worth noting that growth of digital revenue has made the business more resilient as has the repositioning of Bloomsbury from mainly being a consumer publisher to a digital business-to-business publisher in the academic and professional information market. The fact that around 75 per cent of group revenue is derived overseas diversifies risk, too.
Cash continues to build
Although analysts at Investec and Numis expect pre-tax profit and EPS in the 2024-25 financial year to normalise around £35.6mn and 32.2p, they also forecast 33 per cent plus growth in free cash flow to boost net cash to £85mn (104p). On this basis, the cash-adjusted PE ratio would only be 13.6 in 12 months and that ignores the possibility of Bloomsbury overdelivering. I wouldn’t bet against it.
So, having seen the holding deliver a 160 per cent total return (TR) in the past five years, well above the 29 per cent gain on the FTSE All-Share TR Index, I feel the share price has scope to hit Investec’s upgraded target price of 620p (from 600p). Buy.
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