Reach trading ahead of expectations

Shares in Reach (RCH) rose sharply on results day as the newspaper group said it was trading ahead of market expectations, buoyed by better digital sales.

Revenues beat analysts’ expectations, translating into a rise of more than a quarter in adjusted operating profits to £68.9m – surpassing broker Panmure Gordon’s estimate of £65m.

Digital revenues were up by more than two-fifths to £68.8m, while print revenue dropped 5.2 per cent to £232m and circulation fell 5.1 per cent to £160m. Reach, which owns The Express and The Mirror among other titles, said its performance for the six months ending 27 June benefited from “softer comparatives” in the second quarter. The first Covid-19 lockdown began in late March 2020.

But even as such benefits wane during the second half, Reach believes that positive trends, including improved print circulation and online sales, will maintain “underlying momentum”.

Reach opted not to pay a dividend in the first half of last year, instead implementing a non-cash bonus issue of shares. A newly announced payout of 2.75p constitutes a 4.6 per cent uptick on the value of that issue.

Despite being cautious about the macro-environment, Panmure has upgraded its earnings estimates and expects adjusted pre-tax profits of £143m this year, rising to £148m.

Reach continues to invest in data with a view to producing personalised content. Its more targeted ‘plus’ range of ad products has been picked up by local brands while garnering popularity among existing clients. Circulation revenue could be (and has been) worse and digital sales are ostensibly going in the right direction. While the shares trade at nine times forecast earnings, hold.

Last IC View: Hold, 76p, 28 Sep 2020