Structural decline
One of today’s biggest risers is local newspaper group Johnston Press (LSE: JPR), whose shares are up by 17%.
The group’s adjusted pre-tax profit rose by 22% to £31.5m last year, while net debt fell by £14.8m to £179.4m.
The planned acquisition of the i national daily newspaper for £24m has been approved and will go ahead soon. Johnston says that the i deal will give the group access to a 20% share of the “quality market” and will increase earnings and improve cash generation.
However, the structural decline of the group’s business continued last year. Total revenue from continuing businesses fell by 6.8% to £242.3m. Operating profit fell by 7.5% to £50.6m.
The increase in adjusted pre-tax profits I mentioned earlier was mainly the result of lower finance costs, not improved trading.
Johnston Press currently trades on a 2016 forecast P/E of 2. This sounds cheap, but with sales falling and net debt running at 16 times trailing profits, I think the shares are too risky. I’d stay away.
Too late
Carpet manufacturer and retailer Victoria (LSE: VCP) climbed by nearly 9% this morning to a 52-week high of 1,519p. The group said that full-year profits for the year ending 2 April are expected to be “materially ahead” of current forecasts.
In my view this suggests an increase of at least 10% on current forecasts, suggesting adjusted earnings per share of around 80p. The group says that an increased focus on cash generation will also result in a fall in net debt. This is good news, as net debt has risen sharply over the last two years.
Despite this, I do have some reservations about Victoria. The shares currently trade on around 19 times 2016 forecast profits, and offer no yield. This seems quite a full valuation, to me.
A second concern is that companies which grow through a series of rapid acquisitions often end up coming unstuck. I’d like to see more evidence of sustainable profit growth and free cash flow before taking a more positive view.
In my view, it’s probably too late to buy into Victoria.
Strong outlook
Judges Scientific (LSE: JDG) is also an acquisitive business, but unlike Victoria has a long track record of success. Judges’ business model is based on adding small specialist businesses to its portfolio of companies which produce scientific instruments.
The shares are up modestly after today’s solid set of results. Revenue rose by 38.5%, thanks to last year’s acquisition of Armfield. Adjusted earnings per share were 32% higher, at 109.2p. There was some organic growth too — sales excluding Armfield rose by 4.9%.
Shareholders have been rewarded with a 13.6% dividend hike. This takes the total payout to 25p per share, giving a 1.5% trailing yield.
The outlook for 2016 appears strong. Judges said this morning that the group ended 2015 with an order book covering 11.9 weeks, up from 9.9 weeks at the end of 2014. The balance sheet also seems safe, with net debt of only £4.4m — much less than last year’s net profit of £7m.
Is Judges Scientific a buy? In my view it’s a good firm, but the 2016 forecast P/E of 16 suggests that upside may be limited. I’d hold for now.
