Year-to-date shares in media group Future (FUTR) have nearly halved. This has resulted in the shares trading on a 2022 price to earnings multiple of 12.2 falling to 11.4 in 2023.

This represents an attractive entry point for a company which has a consistent record of delivering earnings growth.

Given the increasingly challenging macroeconomic environment we previously said we would wait until the publication of half-year results on 18 May before committing to a constructive view on the stock.

However the robust nature of the results has prompted a series of earnings upgrades and cemented our conviction that Future is substantially undervalued.

Despite difficult Covid-related comparatives reported revenue and operating profit were both ahead by 48%. Earnings per share increased by 27% to 15.7p. The Media division posted first half organic growth of 5% with digital advertising ahead by 10%.

The Magazine business demonstrated significant improvement with a 3% organic growth. Equally encouraging was the 5% organic subscription growth.

Subscriptions now represent 48% of magazine sales, significantly improving the visibility, growth and margin outlook.

HOW FUTURE MAKES MONEY

Future has a large portfolio of magazines and websites. It creates interesting content such as information about cycling, photography or music which compels the reader to click on links to buy related products.

The company has market leading positions in the UK and US in content about technology, and depth and strength in video gaming. However, it’s still early days in terms of profiting from women’s lifestyle interests, fashion and beauty, homes, health and wellness, and financial services.

There is a large opportunity for the group if it can grow and monetise the audience in these categories on both sides of the Atlantic.

Affiliate commerce has been a key driver of earnings growth. E-commerce revenue grew 36% to £216 million in 2021, making it the group’s fastest growing source of revenue.

While a weakening consumer backdrop is a concern, Future’s focus on specialist niches with loyal fans means spending should be more resilient and subscribers could show more loyalty.

What is Future’s structure?

Future is split into two divisions – Media and Magazine. The fast-growing Media division has three revenue streams: e-commerce, display advertising and events. Currently this mix is dominated by display ads but e-commerce is growing rapidly.

The Magazine division derives revenue from news trade, subscriptions and advertising.

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