Publishing firm’s latest deal is set to have a positive impact on earnings
Thursday 14 Nov 2019 Author: Tom Sieber

We think the success story at FTSE 250 publisher Future (FUTR), which has seen the company’s market value increase by several multiples in the past few years, has further to run, driven by the company’s latest acquisition.

On 30 October Future announced the £140m purchase of TI Media, the company behind titles such as Marie Claire UK and Country Life. Imminent results on 15 November could provide the first in a series of catalysts for the share price as the benefits of the deal become apparent.

Since Zillah Byng-Thorne was appointed chief executive on 1 April 2014, the share price has advanced more than 1,700% as she has successfully delivered a strategy of acquiring popular magazine titles and exploiting their potential to the full.

Fund manager Mark Slater notes that in a lot of cases magazines and the companies behind them can be secured inexpensively due to the pressures on traditional publishing.

TI Media, for example, was picked up at an enterprise value-to-earnings before interest, tax, depreciation and amortisation (EV/EBITDA) ratio of 4.9 – compared to Future which trades on an EV/EBITDA of around 20.

Future plugs acquired titles into an existing platform in order to generate revenue from the specialist content and brands through a mix of digital advertising, e-commerce, getting readers to click through to partnered retailers and events.

TI Media is expected to drive a big increase in earnings. Analysts at Berenberg say Future’s price-to-earnings ratio of 31 for the 2021 financial year will reduce to less than 23-times based on its forecasts, assuming the deal completes as scheduled in spring 2020.

The acquired business made 9% of its revenue in 2018 from online activities compared to 57% at Future’s existing operations, suggesting there is significant scope to boost earnings from digital channels at TI Media.

Future saw its share price come under significant pressure earlier this year when equity research firm Stockviews posted an aggressive sell note on the company. But for now it seems to have brushed off the main criticisms.

These included questions over the quality of earnings and its accounting practices as well as concerns it was alienating its audience by trying to make money out of them.

These points, together with the risk of further dilution as the company raises money to finance its M&A strategy and the company’s elevated valuation, remain risks for investors to weigh.

However, assuming it can continue to execute on its tried and tested approach of the past few years we think there is plenty of upside left for investors.

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