- Booming consumer division
- More predictable growth elsewhere
The literary corner of social media platform TikTok, known as BookTok, is an alien place for anyone aged over 25. Influencers – typically young women – use it to document their latest bookshop ‘hauls’, post videos of themselves reading, and voice their likes and dislikes (‘books that will make you SOB’ seem to gain traction).
This internet nook couldn’t bear less resemblance to a corporate boardroom. However, Bloomsbury Publishing (BMY) said it is driving sales, linking TikTok and Instagram to the success of young adult writer Sarah J. Maas and fantasy fiction more generally. The group lifted its sales and profit guidance “significantly” in February on the back of this demand – the latest in a flurry of upgrades. This is a positive shift for a company that at times could have rebranded as Harry Potter plc.
Analysts now expect revenue to increase by 18 per cent year on year to £311mn and cash profits to jump by 29 per cent to £49mn, according to FactSet. The shares have risen by 17 per cent since the start of 2024 and are up by a third since February 2023.
“We’ve been slightly surprised by the strength of the performance,” said Brendan Gulston, co-manager of WS Gresham House UK Multi Cap Income Fund (GB00BYXVGT82). “If you’d asked me when we invested in Bloomsbury whether I thought it was going to deliver what [it’s] delivered – even in terms of the upgrades recently – I’d have said probably not.”
For shareholders, this winning streak poses a conundrum. One criticism that gets thrown at Bloomsbury is that it is too reliant on one-off bestsellers. Much of its past success has been driven by Harry Potter, for example, to which it secured the publishing rights shortly after its 1994 float.
Demand for this series remains staggering: in FY2022, 25 years after publication, Harry Potter sales increased by 5 per cent, although the company does not publish actual sales numbers for the series. Management is aware that it can't rely on the boy wizard forever, and is widening the spotlight onto Sarah J. Maas, whose Court of Thorns and Roses series achieved sales growth of 51 per cent in FY2023.
Social media is notoriously fickle, though, and the TikTok ‘romantasy’ craze is not guaranteed to last either. The strength of future fiction sales, therefore, and the likelihood of launching another star author, is very hard to predict – even though the editorial team has an excellent track record.
The market can be cruel to stocks that disappoint after a spell of earnings upgrades and Bloomsbury is operationally geared, meaning that a revenue slowdown could have a disproportionate effect on profits. Investors may be wondering, therefore, whether it is time to cut and run.
Academic buffer
There are several arguments against doing so. For starters, analysts are predicting that sales and profits will fall in the financial year ending February 2025, suggesting a fiction slowdown is already priced in.
More important, however, is Bloomsbury’s diversified business model. Almost three-quarters of its revenue now comes from customers outside the UK, 35 per cent of sales are generated by the non-consumer business, and a growing proportion of revenue relates to digital products such as audiobooks.
“It is very forward thinking and is embracing the shift to digital channels,” said Gulston.
Crucially, it has moved into online academic publishing. Bloomsbury Digital Resources (BDR) was established in May 2016 and, since then, revenue has grown from £2.6mn to £26.2mn, or 10 per cent of total sales last year. It has been boosted by some acquisitions along the way, but organic growth has been strong, and the division provides visibility that is sorely missing elsewhere. Almost half of BDR’s sales come from subscriptions, and renewal rates are above 90 per cent.
Management believes that BDR can achieve organic revenue growth of 40 per cent over the five years to 2027-28. It is worth keeping a close eye on its progress, however, as sales dipped by 2.2 per cent in the first half of FY2024, and the education market is in a state of flux after the arrival of generative artificial intelligence.
Income option
Bloomsbury can afford some unpleasant surprises, however. Its net cash position is expected to swell by 25 per cent in FY2024 to £64mn, and chief executive Nigel Newton said there was “more opportunity for growth through investing the cash”.
This doesn’t mean that shareholders won’t enjoy some payouts – indeed, Bloomsbury is a popular stock for income funds. “The unbroken dividend track record and strong net cash balance sheet are appealing,” said the investment team at Montanaro, which counts the publisher as a top 10 holding in its UK Income Fund.
Sid Chand Lall, manager of the Marlborough Multi Cap Income Fund (GB00B908BY75), added that the group could afford to pay a bigger dividend as it is “looking stronger and stronger”.
Bloomsbury trades on a forward price/earnings ratio of 17.5 times, which is roughly in line with its five-year average. Over the past five years, however, which have spanned the pandemic and a cost of living crisis, the publisher has demonstrated discipline, flair and a better quality of earnings than many investors originally expected. It's not fanciful to believe that it has further to run.
