Revenues continued to decline at Trinity Mirror (LSE: TNI) last year, slipping from £375m in FY2016 to £320m in FY17. The structural decline of print journalism is no secret, but there was good news in the latest earnings report too and we saw a muted 0.5% share price rise this morning.
Profit held up better than revenues, falling 12% to £47.3m. Digital revenue grew 5.9% to £41.4m, but that increase is nowhere near enough to cover falling distribution and advertising revenues elsewhere.
The company exceeded its cost savings target, cutting £15m costs out of the business when the original target was only £10m. Net debt reduced to a tiny £22.4m, while the pension deficit fell by £59.2m to £406.8m, likely thanks to an increase in interest rates.
A combination of solid cash flow and balance sheet strengthening meant the company increased its interim dividend payments by 7.1% to 2.25p per share. If the final dividend is increased by the same amount, the shares offer a prospective 5.5% yield.
Uncertain Future
The company also bought back £4.6m worth of shares over the period. I find returning so much capital to shareholders a little odd when the existing business model is under strain.
I see no point in buying a structurally declining business only to have management hand a portion of your capital back to you. In my opinion, I’d prefer to see money directed towards the best opportunities for new revenue streams.
To be fair to Trinity, there is a strategy to find new sources of income and the company has had successes. Take the successful launch of ‘Live’ branded sites. These are digital one-stop shops for all things relating to a city, like breaking news, local sport, entertainment, events, local interest, traffic and travel, plus what’s on, and they’ve attracted a lot of page views.
Reinvestment Opportunities
Value investors may find their interest piqued by the company, which now trades on a PE of around five, well below market averages. Of course, this ratio is largely useless when valuing businesses with structurally declining revenues and earnings. If earnings halve, the PE becomes 10, for example. As a long-term investor, I’m not sure that Trinity has found the remedy for its sector-caused ailment, so I will be avoiding the shares.
If I had to invest in a print journalism business, I’d probably choose Daily Mail & General Trust (LSE: DMGT). The company has managed to increase revenue by 7% in Q3 this year. This is thanks to the diversified nature of the business and the prestige of the company’s media assets.
Last year, the firm generated 53% of revenues from B2B services, largely through providing high-value data to the insurance, property, energy, education and finance sectors. The company also operates a number of events that in total generate half a million visitors per year and over 13,000 exhibitors. I’m a fan of trade shows because of the attractive industry dynamics.
In the age of video conferencing, events have held up surprisingly well. As professionals continue to rely on the business they do at trade shows and conferences, the most successful events can expect repeat custom from every essential name in the industry.
The shares change hands on a PE of 11 and yield 3.5%, which seems a fair price considering MailOnline.com is one of the most visited English language websites in the world.
