Tag: publishing

  • Quarto (QRT)

    Half year results

    On Monday, as I was looking for investments to potentially replace stocks in a portfolio I'm fast feeling is no longer obviously cheap, I stumbled back upon my thoughts on Quarto group a couple of months ago. The price is more or less the same, and I remember being bullish then, so I booted back up the spreadsheet and clicked back on their website, only to find they were reporting results two days from then.

    That's always a slightly uncertain moment for me, because I'm still not sure what I feel about buying directly before results. If I'm of the conviction that the stock is undervalued, surely the balance of risks on every results day is going to be positive - it's more likely to surprise (since, if the stock is cheap, expectations are implicitly low)  on the positive and see upwards share price movement. I think that logic is solid, but I rarely follow it. I prefer to wait for results and see where the cards lie before making my decision. Perhaps that's just my all too-human aversion to being in the dark. Maybe I pay a premium for the privilege!

    Either way, the business is obviously functionally the same as it was in my look at it the last time, with two posts; one focusing on the business, and one focusing on the figures. Click through to those for a more complete representation than I'll put here, but to sum up the business in one sentence; Quarto are an international book publisher who focus on non-fiction books - manuals, 'lists' etc. - which makes their revenues and operations less volatile than fiction publishers.

    What do the half-year results tell us about how the business is progressing? Well, not a lot, but perhaps that's a good thing given that I was thinking of buying. It meant the price of the company stayed roughly flat today. It is interesting to see co-founder Robert Morley resinstated to the board after his departure in all the Orbach-related intrigue last year (discussed in first post). The company's working on the usual objectives one comes to expect when a company gets ruffled up - debt reduction and cost reduction. In Quarto's case, there's also a notable hat-tip on digital revenue, after Orbach's level-headed but evident scepticism meant they had a rather lowkey digital strategy before. Still, I have to say, I'm happy to see the company isn't leaping into the fire on this - I see the same refrain as before on the subject, which gives me confidence in Leaver (new CEO, old board member): "we feel strongly that our titles work best in print... That said, if our readers choose to read them digitally we want to make that same content available to them in whatever form they choose to consume it." A reasonable strategy, I reckon. (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…)

  • Quarto (QRT)

    Tying Theory to Practice

    Quarto Group seem like a logical stock to take a look at after my post last week (somewhat tangentially related!) on media stocks and their book metrics. While they're not really in the stable of business I analysed there, they do share a lot of the same characteristics - which we'll come on to later. Importantly from my point of view, they're small in market cap terms, and earn consistently good profits bar an exceptional dip in '08. That's a nice base from which to start any investigation, as those two factors - small enough to induce some sort of pricing inefficiencies and cheap enough (on P/E terms) to offer good long-term returns, on average, strike a chord with my methods. That's the logic behind the very first step, so it's from there that I go into more detail.

    Quarto are in publishing, but with a few key differences from firms that may immediately spring to mind. The most important one is probably the type of books they are producing. Instead of focusing on fiction, a rather hit & miss affair that hopes to churn out a few bestsellers every year to compensate for some of the flops, Quarto have a varied portfolio of books with very narrow remits and niche audiences. Perhaps I could best illustrate this with their best selling book in 2010: 'Complete Guide to Wiring'. By focusing on books for such small groups of people and keeping such a wide portfolio, Quarto remain fairly insulated from the more brutal swings in consumer spending. Revenue, as we see from the graph, is more resilient than one might perhaps expect through a recession; I was particularly impressed that none of their books brought in more than 1% of their revenue. That's no mean feat, and is diversification any investor would be proud of! (more…)