Revenue has stabilised as digital reaches a size where its continued growth offsets the decline in print
Thursday 05 Dec 2019 Author: Martin Gamble

Newspaper publisher Reach (RCH) is rapidly paying down debt and is approaching the point at which growth in digital is making up for the decline in print revenue.

We think investors should take advantage of a compelling valuation opportunity, with the stock trading on a forward price-to-earnings ratio of just 2.5-times.

THE BACKGROUND

You would have to have been living on another planet not to be aware of the relentless move towards digital news at the expense of traditional ‘print’ media, and Reach (previously Trinity Mirror) shares has been punished accordingly, dropping from around £7 per share in 2000 to 98.1p today.

But the recent trading update for the five months to 29 November showed acceleration   in like-for-like digital revenue growth of 14%, from 9.3% for the same period a year earlier, while print’s decline slowed to 7.3%, from 8.2%.

Meanwhile, net debt has fallen from around £90m five years ago to an expected net cash position by the year-end, although the company does have a £348.2m pension deficit.

It recently withdrew from discussions to buy assets from Johnston Press which went into administration last month. This demonstrated financial discipline from the new chief executive Jim Mullen.

Reach has reached the point where growth from digital is offsetting the fall in print, allowing the business to stabilise revenues and generate enough cash to pay down debts and increase the dividend. At the half year stage operating cash flow increased 9.4% to £65.2m.

This has underpinned 4.5% growth in the dividend since it was reintroduced for the 2014 financial year and investors get a 7% yield to boot.

UNDERAPPRECIATED DIGITAL STRENGTHS

What is probably not appreciated is the ‘digital footprint’ of the business and how the print and digital strategies tie in to the overall picture. The company has 40m unique visitors per month.

This makes it the UK’s sixth largest online property, reaching over half the population in big cities on a weekly basis.

While it was a one-off event, the 2019 Champions League final in Madrid offered a good illustration of how the various elements in the business can work together. The Liverpool Echo printed souvenir editions, resulting in four times more sales than the previous week, while the Monday edition of the Echo saw a 93% uplift.

The digital segment had record levels of page views with 17m over 72 hours across the Mirror, Express, Star, Echo and London websites. The company’s podcasts received more than 1m streams over a four-week period straddling the final.

The company also enjoyed market-leading advertising share over the event.

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