Media and business to business group, Daily Mail and General Trust (LSE: DMGT) is falling today, after the group posted a worse-than-expected trading update.
The company, well known for publications such as the Daily Mail as well as the MailOnline, posted a 5% increase in underlying revenues for the 11-month period to the end of August 2014. This performance was led by the MailOnline, which reported a 49% increase in digital advertising revenue for the period.
Total digital advertising revenue growth for the period more than offsetting the 5% decline in print advertising revenues at the Daily Mail and The Mail on Sunday. All in all, underlying advertising revenues across the combined print and digital Mail businesses rose 3% during the period. What’s more, the “Wowcher” voucher scheme also reported revenue growth of 77%.
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That said, overall the Trust’s media arm suffered a 4% decline in reported revenue for the period, as declining print volumes offset digital growth.
Unfortunately, on the B2B side of the business, the Trust reported a £85m impairment charge relating to the value of its insurance risk product. There will also be approximately £5m of additional operating costs due to the delayed launch. As a result, management expects adjusted profit for the current financial year to be at the bottom end of expectations.
Cash return
Alongside today’s downbeat trading update, the Trust announced a new £100m share buyback after the last £100m programme was completed earlier this month. Commenting on this decision, management stated that:
The Board of DMGT remains confident in the overall outlook for the Group and believes that the creation of shareholder value over the long term requires a balanced approach to investing in growth and returning excess capital to shareholders whilst maintaining a strong balance sheet.
With net debt to EBITDA expected to be comfortably below 2.0x at year end, the group is easily meeting its own targets.
But should you buy in?
So, should Foolish investors make use of today’s declines and buy into the Daily Mail and General Trust? Well, at present, the City currently expects the Trust to report a pre-tax profit of £286m for full-year 2014, earnings per share of 54.7p are expected.
These figures indicate that the company is trading at a forward P/E of 13.9, which does not seem overly expensive. Indeed, the FTSE 100 is trading at a similar valuation. City analysts expect the Trust to return to growth next year, with high single-digit earnings per share growth pencilled in.
Further, the group offers a dividend yield of 2.4% at current levels and management has stated that its dividend policy is to grow the payout at 5% to 7% per annum. The payout is covered 2.8x by earnings per share, leaving plenty of room for growth. And of course, there’s scope for the company to increase its share buyback allowance.
A good investment
So, based on the Trust’s undemanding valuation, well covered dividend payout and commitment to return cash to investors, the shares could be a good investment.
