• Mark Watson-Mitchell

Smiths News – just like buying cheap money so don’t miss out

24th June 2021


On Monday of this week the UK’s largest newspaper and magazine wholesaler declared that shareholders on its books by next Wednesday 30 June will qualify for an interim dividend of 0.5p per share. It goes ex dividend the next day and it will be paid out on Friday 30 July.


Apart from a quick dividend payment


Considering that its shares are currently 39.5p, and trading on just 4.3 times earnings, I reckon that now could well be the right time to top up holdings ahead of the next Trading Update.


The company has an interesting trading centre


Smiths News (LON:SNWS), which has a 55% market share for its wholesale side, distributes newspapers and magazines on behalf of the major national and regional publishers, it delivers on a daily basis to some 24,000 customers across England and Wales.


The group boasts of the speed of turnaround and the density of its national coverage, which is critical to one of the world's fastest physical supply chains.


Merchandising, travel points, corporate news


Other parts of the group’s business include - Instore, which offers field merchandising and marketing services to retailers, suppliers and publishers across the UK; and Dawson Media Direct, which supplies printed and digital media to airlines and travel points across the UK and worldwide.


It also takes in Martin Lavell, which is a leading corporate news distributor, supplying newspapers and magazines to corporate and public sector customers for the last 50 years.


It also collects and recycles


Tracing its establishment way back some 200 years or so, this group operates from 37 distribution centres, not only delivering supplies but also collecting and recycling returns.


Research note out this week


In a note published by Edison Investment Research their analyst Andy Murphy suggests that this modest dividend is a signal from the group that its interim results were positive and that the full year expectations will be met.


Bull points, bear points


Murphy notes that the group now has most of its contracts are in place until at least 2024 and its debt is continuing to fall, while its dividends should be growing and will be well covered by the group’s earnings.


His bull points for the company are that its distribution volumes are both predictable and cash generative.


On the other hand, he states that the newspaper and magazine volumes are in a slow decline. Furthermore, he considers that the group’s growth opportunities are scarce.


Consensus profit estimates


Consensus estimates suggest that profits will rise while revenues, for periods to end August, the current year and the coming year will reduce from £1.16bn last year to £1.08bn this year and £1.03bn for the next year.


The pre-tax profit, £27.9m last year, could be about £28m this year and then £30m next year.


Murphy has estimates of 9.2p per share in current year earnings, then 9.8p for the year starting 1 September.


Those estimates show the ‘undervalue’


At just 39.5p these shares are looking to be excellent value, trading on 4.3 times current year earnings and just over 4 times the coming year estimates.


The full year dividend this year could be 1.6p per share, and up to 2.3p next year.


Despite the impact of Covid-19 these estimates would show that the group really is looking undervalued, offering upside in price based upon a healthy and well covered yield of nearly 4% this year and 5.75% for the coming year.


Very good institutional holders list


The company has some 245m shares in issue, capitalising it at just £97m.


Over 73% of the equity is in strong hands, with larger holders including Aberforth, Fidelity, Silchester, Jupiter, M&G, Hargreaves Lansdown and Barclays.


Remember that the canny activist Blake Nixon also has a holding of 4% in the group’s equity through his Worsley Investors (LON:WINV) investment vehicle. The shares of his company, now 30p, are currently trading at over 30% below their asset value.


My View


Buying both Smiths News and Worsley Investors at these current prices feels just like buying cheap money – but well below face value.


(SNWS - Profile 24.07.20 @ 20.25p set a Target Price of 27p*)

(WINV – Profile 19.03.21 @ 25.5p set a Target Price of 32p)

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