DMGT: Pick your enemies

Changes to the way the social media giant formats its home page have stunted the number of external articles it advertises. That means the average number of daily unique browses captured by the Mail Online fell 9 per cent to 13.6m, while underlying revenue growth has fallen from 19 per cent in the first half of 2017 to 5 per cent in these numbers. There was a time when Facebook was an enemy to publishers because it was a source for second-hand news; now it is an enemy because it isn’t.

And the indirect challenge (and market disruption) provided by this US foe are unlikely to let up, which is why the outlook for DMGT’s media business is so glum. In the second half of the year, the rate of revenue decline is expected to be in the mid single digits, while operating margins are forecast to be around 10 per cent – two percentage points lower than 2017 on a like-for-like basis.

The group’s larger business to business division provides little comfort. Despite a better-than-expected performance from the risk management, education and energy portfolios in the first six months, management has failed to upgrade its annual forecasts, suggesting that revenues will be slower in the second half. Broker Numis has therefore maintained its pre-tax profit and EPS forecasts at £180m and 42p, respectively, down from £226m and 55.6p in 2017.

Still, the balance sheet is a less hostile environment than it has been for many years thanks to canny portfolio management. Net debt was £534m in March, excluding the £146m of proceeds from the sale of real estate data group EDR to private equity firms Silver Lake and Battery Ventures, which was completed after the period end. Silver Lake has also agreed to buy Zoopla owner ZPG (ZPG), including DMGT’s stake. The £640m bonus from that sale has the potential to shift the group into a net cash position.