Tag: Media

  • Communisis (CMS)

    Still Going Strong

    It's coming up to a year since I started this blog, and some of the companies included in my original portfolio have more or less stayed there without further discussion. Much of this is for good reason - there just isn't much interesting to say - but Annual Reports seem to provide a good time to endeavour to refresh your analysis of the company and bring yourself up to date with things once again. It's an idea I stole off Richard Beddard  that'll hopefully see me not fussing too much about small price movements and provide a timely update on how things are going with the companies I part-own.

    Communisis doesn't exactly fit that category. First there was the to-ing and fro-ing about its inclusion, and then came a rather sharp and unexpected price move that had me wondering whether I should be reconsidering its position - it had risen about 60%. I decided back then to wait for the annual reports to reappraise things, and so here we are - they were published yesterday.

    Having read them, though, they get a resounding vote of normality. Revenues and profits came pretty much in line with expectations, exceptional costs continue to drive down the reported figures with adjusted figures rising (I use adjusted figures in the graph) and margins continue to creep up to the management's long term target of 10%. Recently, they also announced a rather large investment project - another £10m on state of the art printing equipment - to ensure they keep their competitive advantage and enjoy the high margin, differentiated business vs. the bulk mailing they may have been associated with. (more…)

  • Playing the Market (2)

    The comparisons

    After a brief break from the financial world, I have returned - and a chance to jump straight back in to the topic I was discussing on Wednesday - lateral thinking, if I'm being vague and woolly! To paraphrase, it was some thoughts on getting from an investment idea to stockpicking. I left with 4 stocks that could potentially play the theme of a newspaper sector which you think is going to last longer than market expectations - Smiths News, John Menzies, Trinity Mirror and Johnston Press. I was also reminded on Twitter by Philip O'Sullivan of another potentially interesting one - Independent News & Media, which he covers here - thanks for that!

    This post will just see me comparing some valuations in two broad categories - distributors and producers - in order to, as always, get to know the businesses as well as their obvious pitfalls. If there was a unifying thread through my last post, it was that knowledge is power - so by looking at the accounts and background of these 5 companies we may distill some shred of insight and decide whether a) the sector is where we really want to be and, hopefully, b) whether a particular stock stands out to us.

    Starting with the distributors then, Smiths News and John Menzies together make up the vast majority of the supply chain for newspapers in the UK, and superficially both have typical 'value' characteristics - low historic and forward price to earnings ratios accompanied by strong dividends. Looking at these two is actually rather a neat exercise in market expectations, as there are some rather notable differences in operations that one has to consider. (more…)

  • Playing the Market

    Executing an Investment Idea

    When compiling my last post on Smiths News, I was reminded of a few of my previous thoughts - notably Johnston Press, a regional newspaper producer. The link seems obvious - both are cheap largely for a wide, sectoral reason. While many of my shares exhibit this same characteristic in one sense or another, most also combine it with some company specific problems, and few have problems to the extent the newspaper sector does. The housebuilder Barratt, for instance, faces significant questions about wider macro issues, cost pressures, regulatory questions and a historically justified lack of faith in its safety. This explains housebuilders' valuations relative to their book values. Even given that, though, we all know that people will still need places to live in the future - that's a need that can't be replaced. Newspapers are entirely different. It is a want which (depending on who you talk to) may be becoming irrelevant as we change our consumption of news. With that in mind, I thought I'd take that general theme - the sectoral story - and expand on it with a post with a wide perspective, and put myself in the shoes of an investor who likes the idea of Smiths News but wants to weigh up more options.

    The aim

    We think the idea of newspaper decline is overdone and they'll remain important for longer than seems to be suggested by a) the media and b) opinion on related companies. Hence, we're looking for the best way of 'playing' this with a relatively small cap stock. I'm limiting my universe as it's what I'm more comfortable with and an area I think is more likely to breed the sort of mispricing we're after. (more…)

  • Smiths News (NWS)

    The Clock is Ticking

    Smiths News are an interesting company because they're one of those that, while invisible to the vast majority of people, are a vital backbone of the business they're in - newspaper wholesaling. Essentially, they are the guys that get the newspapers and magazines to the stores on time, and since their 2009 acquisition of Bertrams (a leading book wholesaler) they're also a fairly significant player in that market, too. Formed by a demerger from WH Smith in 2006, their performance to date could best be described as unspectacular but reliable - in those 5 years, they've consistently paid out a strong dividend and eked out a decent level of profitability. The stats from the company's 'Our Business at a Glance' PDF tell the story of the company better than I could, and probably best highlights their strengths:

    - 55% market share in newspaper and magazine distribution - 45% market share in book distribution - £115m cash generation since '07 (compared to current market cap £170m)

    This catches my eye for obvious reasons. Few companies manage (or are allowed to manage!) an above 50% market share; indeed, the fact they operate at a share so far above the 'legal definition' of a monopoly - apparently 25% - speaks volumes for the economics of the industry. In particular, their must be considerable efficiencies in the business that outweigh the regulatory issues - something which seems perfectly reasonable given what we know. Logistics of the sort Smiths News are involved in (high volume, very time constrained, low marginal cost) lends itself quite nicely to having a few dominant players, and those same qualities present investors with a business that appears to possess more inherent resilient than most smallcaps. Most, with fairly small revenues, must be aware that at least from a theoretical economic perspective there's a double-edged sword in huge market growth - in that the whole point of markets is to signal where capital should be allocated. Competitors are always around the corner should your market prove to be too lucrative. Smiths News seem to present a lot less risk on a competition front than most, then, though you'll note I'll never say never! (more…)

  • Haynes Publishing (HYNS)

    A true old-timer

    Haynes Publishing are a company with a history far longer than most companies this blog follows. That has both its positives - looking back, hopefully, allows us to look forward with more clarity through cycles and other short-term variations - and its negatives, notably that the market looks to be questioning just how much longer its core products will keep going on for. Much like many printed media companies, the digital age has shaken up long-held norms, and for Haynes - who supply mainly car manuals (though they do other sorts as well) - there's the question of just how much longer that demand will exist. Ancedotally, I suspect the market is aging and unlikely to be completely replaced by the next generation, who grew up with more complicated cars and perhaps less of a DIY mindset. Perhaps I'm just extrapolating my own shortfalls - I wouldn't trust myself anywhere near an engine!

    Richard Beddard has many a post on Haynes, a constituent of his portfolio, and the latest covers a lot of the attractive features. I'll try not to tread on his toes too much, then, but the argument in favour of Haynes is really very simple. It's cheap in terms of assets, particularly for a publishing company, in that its balance sheet is debt free. Even excluding intangibles the company is trading on a low multiple of book value. It's cheap in terms of both a traditional historic P/E ratio, looking at last year's results, and when considering its average performance over the longer term; the firm has been consistently profitable. Finally, it's cash generative (over the long term cash generation and profitability roughly match, as it should be) and aligned to the interests of shareholders through management share ownership.

    It's almost like working an investment backwards, then; what's attractive is obvious. The real question is how similar the future will be to the past, and whether we think the market is overdoing the secular decline in Haynes's core markets. One thing that always slightly irks me about discussions on the future of industries is that they generally seem to present the companies involved as completely beholden to the whims of the great market in the sky. This isn't entirely the case - there is a reason 'media' as an entity has existed basically as long as civilisation has - because there is a need for it. There is a genuine human desire to better oneself, to acquire knowledge, to know what is happening. While I wouldn't disagree that print media does look like an aging beast, Haynes are doing as many media companies are and moving with the times by digitising content and harnessing the power of the internet to distribute their goods. (more…)

  • Communisis (CMS)

    All in the Timing

    If there's an enjoyable question to be asking in investing, it's probably the one I need to ask myself about Communisis now; given the recent upward trajectory, should I be considering selling? A little background, then. I bought Communisis at 25p back in August, having previously rejected it 2 months earlier in June. Its strength was in its customer relationships and several intangible factors, I argued back then, and I wasn't ready to take the plunge given the pivotal time they were going through. The rejection, though, was at something like 34p - and the August purchase came after a huge 2-day drop down to 25p on no news. In the meantime the company had released a strong set of interim figures suggesting the turnaround was progressing nicely, reporting higher revenues and profits, and showing glimpses of the large increases in profitability that could be possible given obvious cost savings in a business becoming markedly different from what it was in the past.

    I liked the story - a company changing, unnoticed, and its price action certainly made it seem like a sleeping share - low volume, price moves on no news etc. It's easy to be bullish in hindsight, though, as over the last couple of weeks Communisis have stormed upwards. No company announcements have been made in this time, and the only real news I have seen related to the company was a piece in Investors Chronicle. Entertainingly, browsing through the site now, that performance didn't go unnoticed - browse down to the brownish coloured box, and the comments section which somewhat worryingly seems to indicate a sort of 'pile-in' mentality for shares discussed on the site. Still, I'm not complaining. I buy shares because I think they're undervalued, and the method of revaluation doesn't particularly concern me. Often, though, it will be operational improvements that see share price improvements - and in those cases, the value story may not have changed much. If we think about it purely in terms of price to earnings ratios, a price rise of 20% doesn't change the value perspective if earnings have also risen by 20%.

    Obviously, without Communisis reporting,  we just have an inflation in price without a change in earnings. That, of course, materially influences my view on the company. Consider the chart and boxes below: (more…)