Bloomsbury's magic touch is still in evidence

Bloomsbury Publishing (BMY) is best known for launching Harry Potter to international stardom. The boy wizard is still a nice earner for the group: Harry Potter and the Philosopher's Stone was the third-best-selling children’s book in 2022, 26 years after it was first published. However, growth is now being fuelled by non-consumer products such as textbooks, digital resources and “educational fiction”. 

In the year to 28 February, non-consumer revenue grew by 19 per cent to £97.4mn, while adjusted profit before tax shot up by 43 per cent to £13.1mn. The division was bolstered by a couple of major acquisitions, but organic growth was also decent at 3 per cent. 

Bloomsbury Digital Resources (BDR) is a particularly successful sub-division. It achieved revenue growth of 41 per cent in the period with 18 per cent organic growth – and is targeting a further 40 per cent of organic growth over the next five years. It now accounts for 10 per cent of group revenue. 

Given that BDR was only set up in 2016, this is very good going. The digital division also improves earnings visibility for the group, as it has an academic customer renewal rate of above 90 per cent, and its model is both high-margin and scaleable (the non-consumer division achieved a pre-tax profit margin of 13.4 per cent in the period, compared with a consumer margin of 10.9 per cent). 

That’s not to say fiction isn’t a core part of Bloomsbury’s appeal. Children’s revenue increased by 17 per cent to £109mn in the period, driven by “excellent sales” of Sarah J Maas titles and the enduring popularity of Harry Potter. Meanwhile, adjusted profit before tax rose by 9 per cent to £17.2mn. 

Growth was more sluggish in the smaller adult section. While sales grew by 5 per cent to £57.8mn, adjusted pre-tax profit shrank from £2mn to £1mn. Marketing and distribution costs dragged on profitability, as did administrative expenses. 

However, chief executive Nigel Newton stressed that in the tougher economic climate readers are increasingly turning to books “as they cut back on more expensive forms of diversion”. 

The group is forecasting slower growth for 2024: sales are expected to rise by 3 per cent, while adjusted pre-tax profit is expected to grow by 3.5 per cent. However, management has a history of profit upgrades, so investors may be pleasantly surprised. Either way, a forward price/earnings ratio of 14 still looks reasonable for a well-run publishing house with a stellar track record and convincing growth strategy.

Last IC View: Buy, 435p, 26 Oct 2022