Shares in magazine and newspaper wholesaler Smiths News (SNWS) gained 2% despite the firm posting lower 1H profits. Investors focused instead on the company’s confirmation FY results would be in line with market expectations.
Guidance confirmed
For the six months to end-February, the firm posted a 3% drop in adjusted net profit on the back of a 4% drop in revenue. On a reported basis, net profit was down nearer 10% and earnings per share were down close to 11%.
However, the company put the drop down to higher NIC contributions and ongoing investment in technology. That investment appears to be paying off, with a 35% increase in H1 revenue from ‘growth verticals’.
Also, the firm registered a 59% increase in free cash flow during the period from £13.3 million to £21.2 million. That allowed it to swing from net debt of £12.4 million to a net cash position of £7.8 million.
The outlook for H2 remains positive with the FIFA World Cup coming up plus the Pokemon 30th anniversary collection. Collectables such as Pokemon have become big business, and Smiths has secured distribution across the four biggest UK supermarket chains.
CEO Jonathan Bunting said momentum was positive across the business while opportunities in areas like recycling were ‘gaining traction’. Following a recent deal with Guardian Newspaper Group, the firm has secured 96% of existing publisher contract revenue through to 2029.
Distributing newspapers, magazines and collectables is a pretty low-growth, low-margin business. However, investing is all about expectations and shareholders will be pleased to hear the company confirmed its guidance.
They’ll also be encouraged to hear the decision to invest in new ‘growth verticals’, such as recycling, is already paying off. Plus, free cash flow is improving, albeit helped by working capital movements, which is positive for dividends.
Smiths is a popular pick among small-cap income investors, with a yield of around 9% at current prices. Given over 95% of revenue is secured out to 2029, that payout doesn’t look to be in any danger either.
Read the press release here:
