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Why DMGT is still the great survivor

Covid-19 hit profits again, but investors are still upbeat on the Daily Mail publisher
May 27, 2021
  • Profits dropped in the first half, as consumer media and events struggled 
  • Slimmer portfolio and Cazoo stake give reason to be optimistic 

Newspapers have not had a good year. Empty shops and weak ad sales have hit sales across the industry. But since the crash in March 2020, shares in Daily Mail & General Trust (DMGT) have recovered 44 per cent. In fact, they are now just slightly above their pre-pandemic levels. 

That is not to say the group has managed to escape the impact of the pandemic on the advertising market, or indeed newspaper circulation.  In the six months ended in March, pre-tax profits dropped by more than two-fifths to £42m, mainly because of poor performance at its events and consumer media businesses.

Underlying revenue from consumer media, which includes the i and Metro titles, fell 13 per cent to £604m. Its eponymous print flagship title and the Mail Online managed to post growth, according to chief executive Paul Zwillenberg. The latter recorded a 9 per cent increase in underlying revenue, but that was overshadowed by a 38 per cent slump in print ad sales in the division.  

Weakness in this business was offset somewhat by growth in its B2B information services division, where underlying revenue increased by 9 per cent to £232m. That includes its insurance risk and property information services, with the latter recording an 89 per cent increase in adjusted operating profit to £22m, thanks to a highly active residential housing market in the UK. Insurance risk, however, logged a 4 per cent fall to £19m.

But, overall, poor circulation, limitations on big events and a suffering ad market battered DMGT’s bottom line in the first half of its financial year. 

Yet the publisher’s shares bumped up 4 per cent on the morning of its results. Clearly then, investors were instead drawn to the few – but significant – bright spots in DMGT’s interims. The group now has a slimmer business model, has added the subscription-based New Scientist magazine, and retains an increasingly attractive stake in Cazoo. 

Following the online car retailer’s announcement of its intention to list in the US via a SPAC, DMGT says that its total £117m investment could be worth $1.35bn (£960m). That would represent a return on investment of eight times. Combine that with the proceeds from its $405m disposal of educational technology business Hobsons earlier this year, and the group should soon have plenty of cash to boost its digital strategy, and continue to follow where the ad money is headed.

The New Scientist will serve as a helpful template, which it acquired for £67m in March. The magazine has a popular digital product, and around three-quarters of its sales are derived from subscriptions, which should improve the quality of the business’s revenue streams. Shared expertise here could also help the group boost its subscriptions for the paid-for ‘enhanced digital version’ of the Mail newspaper, ‘The Digital Edition’.

Management is still cautious on the outlook, saying that B2B information services is well positioned for further growth, but that consumer media “remains unpredictable” and events still face the risk of further postponements or cancellations. There are two physical events already scheduled for the second half in Singapore and Dubai, but the group has rightly noted that exhibitors’ and delegates’ willingness to travel internationally might not bounce back, even as formal restrictions fall away. It expects the events scheduled for this year to deliver significantly less profit than usual. A full recovery in this division still looks a way off. 

That might make DMGT look less appealing compared with listed peers that are not burdened by events businesses, like Future (FUTR). But over the course of the past year the group has proved that it is able to make smart, strategic decisions about the make-up of its revenue streams. The publisher has survived close to a century on the public market, and while a pivot towards subscription-based media products is arguably a bit late off the mark, it is a step in the right direction. 

A wider recovery bodes well for the publisher, too, and consensus estimates compiled by FactSet point to pre-tax profits of £56m in the full year for 2021, rising to £73m in 2022. Potential investors should still be prepared to take on plenty of risk with DMGT, especially as a big chunk of its top line still relies on circulation. But we think that its ongoing transition to a smarter, more digital model holds promise. Buy. 

DAILY MAIL AND GENERAL TRUST (DMGT) 
ORD PRICE:870pMARKET VALUE:£1.83bn
TOUCH:868-870p12-MONTH HIGH:997pLOW: 601p
DIVIDEND YIELD:2.8%PE RATIO:31
NET ASSET VALUE:832pNET CASH:£200m 
Half-year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202064277.015.07.50
202154742.016.87.60
% change-15-45+24+1
Ex-div:10 Jun   
Payment:2 Jul