Buy Bloomsbury for reliable income

In the 2018 financial year, Bloomsbury generated £19m of net (after tax) cash from operations, equating to 161 per cent operating cash conversion. So, even when earnings drop – which they did in the 2017 financial year following an uptick in investment – management is confident that the balance sheet and cash flow can support a gradually increasing dividend. Over the last five years the dividend is up by over a third and the compound annual growth rate stands at a hearty 6.4 per cent.

But aside from being a solid income stock, Bloomsbury is in an exciting period in its development following management’s decision to up its investment in academic titles and books for grown ups. In the latter category, the publisher has had great success with cook books – particularly Tom Kerridge’s Lose Weight for Good – meaning revenue rose 12 per cent to £33m in 2018, making up roughly a third of the group’s dominant consumer division. The consumer division accounted for 63 per cent of revenues last year, having grown a fifth due to the Potter anniversary bump.  

To boost the academic side of the business – where revenue growth has been much slower – the group recently acquired IB Tauris, which has a catalogue of 4,000 books specialising in history, politics and international relations. The business is expected to contribute £3.5m of revenue in the year to February 2019 and broker Investec thinks revenues in the non-consumer division rise 12 per cent to £66.4m as a result.

Meanwhile, the group is in the midst of its ‘Bloomsbury Digital Resources’ growth initiative, which management think will make it, “a leading non-consumer publisher in the business-to-business academic and professional information market”. In 2018 costs associated with the project peaked at £1.2m, which tapered operating profits in the non-consumer business and knocked group operating margins from 8.4 per cent to 8.1 per cent. However, broker Investec forecast that the investment, which will enhance the online offering, will help boost margins to 10 per cent by 2021.

It’s true, market dynamics have not been easy for publishers and the academic book industry has struggled to modernise in an increasingly digital world. But we don’t think these trends will not be too much of a problem for Bloomsbury. Its track record in publishing helps it attract world-class authors and it has already proven its capacity to digitise – all of the books in its consumer division are published in print and online.