Future's improved margins leads to guidance upgrade

Future (FUTR) owns a wide collection of specialist magazines. The commercial potential of this corner of the media market arguably first came to light during the 1980s through the business dealings of Dennis Publishing. The benefit of this model is that it focuses on people’s passions. Each magazine may not have a huge readership, but they have an enthusiastic following and relatively little competition, unlike the large traditional newspapers.

This upside is borne out by the strong audience growth figures. In the past year, the overall audience has grown 10 per cent to 394m, while online users are up 8 per cent to 282m. On a two-year basis, average organic revenue growth for the business was 15 per cent thanks to a 25 per cent growth in media revenues.

Media revenue includes digital advertising, which was up 21 per cent on average over the past two years. Improved data analytics has helped the company target readers more efficiently and improved the yield on advertising spend. With increased competition in e-commerce during the past year, demand for online advertising space should only continue rising.

The company benefits from economies of scale because adding users doesn’t require an equivalent increase in spending. This effect has improved the operating margin by four percentage points to 32 per cent.

Future expects this to drive further margin expansion across the business and now expects adjusted results for 2022 to be “materially above current expectations”. Peel Hunt has increased its adjusted EPS forecast for 2022 by 8 per cent to 142.7p.

Mainstream newspapers may be on the decline, but specialist titles are still in high demand. At a forward PE of 21.4, Future looks affordable given its strong growth, widening margins and loyal readership. Buy.

Last IC View: Buy, 2,636p, 19 May 2021