Print newspapers appear to be well and truly in unstoppable decline, which is why shares of publisher Trinity Mirror (LSE: TNI) trade at a rock bottom 4.3 times trailing earnings. But it’s not all doom and gloom for the owner of the Daily Mirror and Sunday Mirror as the company has increased earnings for four consecutive years and shareholders enjoy a 5% dividend yield that is covered more than six times by earnings.
The key to Trinity Mirror’s financial success has been transitioning to digital platforms and buying up local newspapers in order to cut back-end costs through consolidation and increased selling power with advertisers. This is working, but within the world of print newspapers this simply means a manageable decline rather than top-line growth. Indeed, in Q1 revenue fell 16% year-on-year as revenue from print advertising fell a whopping 19% on the back of decreased circulation.
Acquisitions aside, the company’s decline is almost inevitable as digital revenue, while growing fast from a small base, isn’t enough to make up for the huge drop in readership and advertising fees. But in the meantime, management has proved adept at increasing margins and milking the business for all the cash it can provide.
In 2016 the group recorded adjusted EBITDA of £159.7m from £713m in sales, which allowed for net debt to decrease from £92.9m to £30.5m year-on-year, in addition to increasing dividends and initiating a share buyback programme. Last year dividend payments reached £14.6m and at current prices represent an annual yield of 5.05%. On top of this the £10m share buyback programme is helping to provide positive momentum to the company’s share price.
With little debt, plenty of future acquisition targets and a competent management team, Trinity Mirror is far from dead in the water. For investors who aren’t put off by investing in a slowly dying industry, the company’s low valuation and big shareholder returns may be worth a closer look.
Bottoms up
Just as consumers have switched from reading their local paper to going online, pub groups have struggled of late as drinkers turn from having a pint at their local to a few cans at home. This trend hit the likes of Marston’s (LSE: MARS) hard as the company was saddled just a few years ago with a huge estate of relatively empty and unattractive pubs.
But management has righted the ship in recent years by moving to become a major player in premium beer brewing, as well as rationalising its estate and re-fitting retained locations into cheerier locations with better drinks and food. This turnaround plan is beginning to pay off and the company has posted two straight years of earnings growth. However, its growth prospects are rather low due to a highly competitive industry that is experiencing little to no overall expansion.
And on top of posting just 2% year-on-year sales growth in H1, the company is highly cyclical and leveraged like the property firm it basically is, with net debt a full five times EBITDA. So despite its shares trading at just 10 times earnings and a great 5.4% dividend yield, Marston’s isn’t be a share I’ll be buying any time soon.
