A bad year for Daily Mail and General Trust (LSE: DMGT) shareholders just got worse, as the company reported a full-year pre-tax loss of £112m, from a £202m profit a year previously.
The resulting sell-off pushed the shares down as low as 500p for a 28% dip, though they came back a little to 545p — still a 22% drop.
Are things really as bad as that sounds, give that the company headlined Thursday’s results announcement by claiming a “resilient underlying performance“?
An adjusted pre-tax profit of £226m looks a lot better, though it still represents a 13% deterioration over 2016 as adjusted revenue also fell by 13%. And at the bottom line, adjusted earnings per share slipped by just 1% to 55.6p.
The company also produced 2016 pro-forma adjusted results aimed at a like-for-like comparison based on its varied ownership of Euromoney Institutional Investor during the year after reducing its stake from 67% to 49%, and that resulted in a 4% rise in pre-tax profit. Who said company accounts were complicated?
Debt down
There’s some good news in DMGT’s net debt, which was reduced during the year by £214m to £464m. That might still sound a lot, but it seems modest for a company bringing in £1.66bn in revenue, and the resulting net debt-to-EBITDA ratio of 1.4 is “comfortably within preferred range.”
Chief executive Paul Zwillenberg reckons “the new strategy and strong balance sheet will, over the medium term, generate consistent earnings growth that will underpin DMGT’s long-standing commitment to deliver sustainable annual real dividend growth.” And on that front, the dividend was lifted by 3% to 22.7p per share (from 22p last year).
That’s in line with inflation, but it’s less than the 23p forecast by the City’s analysts, and on Wednesday’s closing share price it would have represented a yield of 3.2% — but the share price fall has boosted that 4.2%, so those buying today will do a bit better out of it.
Can it deliver?
The question now is whether DMGT can turn a new strategy under the guidance of its new chief executive and new finance director into sustainable long-term growth. It is in the declining newspaper business, but also operates a number of other multinational companies, and with MailOnline.com a big overseas success.
The strategy is based on three main priorities: improving operational execution, increasing portfolio focus and enhancing financial flexibility.
According to Mr Zwillenberg, pruning the management structure and reducing overheads is helping with the first, and the sell-off of part of Euromoney plus other restructuring addresses the second point. Together, that does seem to be helping on the financial flexibility front, with that net-debt-to EBITDA of 1.4 times apparently the lowest it’s been in more than 20 years.
Underlying valuation
Prior to the price crunch, we were looking at a P/E multiple of 12.5 based on adjusted results, and with the shares pummelled that’s now dropped to 9.8, again on adjusted results.
Do I think that represents a good price to buy-in at? With the changes in the company over the past year as it settles its new direction, and with a number of one-offs clouding DMGT’s statutory results this year, a year-on-year comparison is indeed tricky.
But I think the market has overreacted to the top-line statutory figures and the reaction is overdone. And yes, I see a buying opportunity here, with solid long-term potential.
