Profits fall at Smiths News

Newspaper distributor Smiths News (SNWS) saw revenue and profits decline in the first half of its financial year. Group sales only dipped by 2 per cent to £540mn, but adjusted operating profit had a tougher time, falling by 7.8 per cent to £18.8mn.

The company attributed this to a “particularly strong comparative period”, which included the men's football World Cup and Queen Elizabeth's state funeral. Management is hopeful that things will pick up later this year, citing the men's UEFA European Championships and some newspaper contract wins. Looking further ahead, it has secured contract renewals covering 74 per cent of its existing publisher revenue streams, “ensuring revenue stability through to at least 2029”. 

It has certainly made progress on its balance sheet. Average bank net debt has more than halved to £12.5mn, reflecting good ongoing cash flow generation. Free cash flow turned positive in the period, climbing from an outflow of £0.2mn last year to an inflow of £4.2mn. Investors seem cautiously optimistic, with the shares up by 7 per cent since the start of the year. 

The big issue Smiths News faces is the decline of print journalism. Mirror publisher Reach (RCH) today reported a 3.4 per cent fall in print circulation sales, and said volume decline had been mitigated by cover price hikes.

Smiths News has clearly made internal improvements, however, and the dividend yield has its attractions, but it is hard to get excited about the long-term growth prospects of a company that is so wedded to paper and ink. Hold. 

Last IC View: Hold, 49p, 8 Nov 2024