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The publisher has a very strong balance sheet and still looks attractively valued
Thursday 04 Feb 2021 Author: Tom Sieber

It seems we rediscovered the joy of a good book in lockdown and this has helped propel shares in publishing firm Bloomsbury (BMY) to the heights it last enjoyed in the mid-noughties when the Harry Potter craze was at its height.

The stock looks inexpensive, meaning there is still time to buy the shares and hopefully see them go up further in value. Bloomsbury is now a more diversified and digital story and we see medium to long-term growth potential backed by a strong balance sheet.

The company’s latest trading update (28 Jan) said revenue is expected to be ‘ahead’ and profit ‘well ahead’ of market expectations of £161.8 million and £12.1 million respectively for the year to 28 February 2021.

Based on upgraded February 2022 forecasts from Investec the shares trade on an undemanding 17.8 times forward earnings per share.

The enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) ratio (which factors in the company’s estimated £49 million of net cash) arguably highlights the shares’ attractions better at 8.6 times. Investec says this is ‘notably below the level of recent industry transactions’.

While people have been unable to go to book shops for large periods of the last 12 months due to Covid, the nation was already comfortable with ordering books online and consuming titles through e-readers.

Releasing content in a digital format allows Bloomsbury to generate revenue from a ‘backlist’ of previously published books at very limited additional cost, benefiting margin performance.

Bloomsbury was something of a one-hit wonder historically, heavily reliant on sales of the Harry Potter titles. However, the list of standout bestsellers over the past six months shows this is now a publisher with a much broader portfolio.

They include new releases such as Eat Better Forever by Hugh Fearnley-Whittingstall and Joe Biden: American Dreamer as well as strong backlist sales of the Sarah J. Maas books.

The company’s academic and professional publishing arm has been a key part of its growth strategy and a focus on digital resources has served it well during the pandemic.

Risks include a hit to consumer spending as the economic fall-out from the coronavirus crisis feeds through and a hit to academic-related sales from depressed enrolment rates at universities.

The company also may have alienated elements of its shareholder base with a dilutive £8.4 million share placing in April 2020, which looks increasingly premature in hindsight.

However, this fundraise does at least leave the business cashed up and with the option to invest either in acquisitions or in the existing business.

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