Future’s uncertain future

It is not immediately obvious why shares in Future (FUTR) fell by 6 per cent after investors read the group’s annual results. In the year to 30 September, revenue grew by more than a third to £825mn and adjusted operating profit jumped by 39 per cent to £272mn. Cash is still flowing strongly, the group has upped its dividend yet again, and its content is reaching one in three people online in the UK and the US. 

Scroll down a bit, however, and you’ll spot the problem. Management only expects “modest profit growth” in 2023, which suggests business has started to cool off in a big way. 

A closer look at Future’s revenue streams could explain why. The group makes most of its money through advertising, subscriptions, newsstand sales and 'affiliates', which is the commission it earns when an online reader clicks through to a third-party website to make a purchase.

At first glance, almost all these revenue streams are achieving double-digit growth. However, the figures are flattered by five acquisitions made in 2022, including the purchase of Dennis, which owns publications such as MoneyWeek and IT Pro.

Organic growth is significantly less impressive. While digital and print ad sales are up by 7 per cent and 5 per cent, respectively, subscriptions are down by 11 per cent. Management attributed the fall in subscriptions to a post-pandemic “normalisation” of demand, which makes sense – activities outside the house are now available once again. However, it means the group is heavily reliant on its advertising department, which is not a hugely comfortable position to be in given the economic backdrop. 

It’s certainly not all doom and gloom, though. The group is making good inroads in North America, where organic revenue grew by 7 per cent (compared with a 1 per cent decline in the UK). The acquisition of Marie Claire US and Who What Wear should fuel US growth going forwards. Meanwhile, the group is turning 98 per cent of its adjusted operating profits into adjusted free cash flow and – despite wage inflation – its adjusted operating margin has risen from 32 per cent to 33 per cent. 

Future’s share price has fallen by 60 per cent since the start of the year, meaning it now trades on a tempting forward price/earnings ratio of less than nine. However, subscription numbers and ad sales are likely to come under pressure in the short term. Downgrade to hold. 

Last IC View: Buy, 2,114p, 18 May 2022