Value and recovery at Communisis

Digital and services-based work has been growing as a proportion of overall revenues, accounting for 60 per cent at the latest half-year, from 57 per cent a year earlier. In order to stay ahead of the curve, the group is investing heavily in technology both to expand its services and improve its efficiency. In the first half, central costs increased by £0.6m spent on improvements such as enhanced cyber security and preparation for the introduction of general data protection regulation next May. Yet that's good because Communisis's bosses reckon that as regulation increases, so do barriers to entry for competitors, making the company's defences stronger. 

Another defensive strength is the group's client relationships. Communisis does marketing for a wide range of blue-chip clients, recently winning contracts with the UK's taxman, insurer LV= and HSBC. In the first half of 2017 it signed multi-year renewals with Nationwide, Virgin Money and Co-op.

While the UK remains the focus for the company, management is working to diversify business internationally. But it still has some way to go to reduce this risk. At the latest update, 30 per cent of revenues were generated internationally up from 24 per cent in 2016. Outside of the UK the group has performed well in Spain, Poland and the Netherlands.

Communisis has a defined-benefit pension scheme - a common burden for older UK companies. At the most recent triennial valuation the deficit had increased to almost £30m from £19.5m at the 2014 valuation. The company has agreed to pay repair contributions starting at £2.55m annually, increasing in line with the rate of dividend growth or at least by 3 per cent. In addition, it will pay £1.15m annually into an arrangement designed to fund the scheme should the company go bust. Arrangements like this are common, and the recently agreed plan gives investors some clarity about the likely costs of plugging the pension deficit.