When it comes to value stocks, there’s one trading in London today that looks cheaper than most. The company in question is newspaper business Trinity Mirror (LSE: TNI) which has really struggled to impress investors over the past five years.
Growing out of a slump
Trinity is suffering from declining newspaper circulation volumes. Declining sales volumes mean that papers are less attractive to advertisers and the group’s chief income stream, advertising revenue, has been steadily declining for some time now.
Still, despite these pressures, Trinity remains profitable and highly cash generative. Since the end of 2011, the company has reduced net debt from £211m to approximately £22m and initiated a dividend in 2014 for the first time since the financial crisis. Analysts believe the firm can earn 34.5p per share, and 2017 and 34p in 2018 as earnings from the group’s online properties begin to pick up the slack from traditional income streams.
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As part of management’s drive to stave off the decline, it is also currently in talks to acquire certain assets of Northern & Shell, the owner of the Daily Express. Current speculation suggests that the company could offer £127m for these assets with the consideration paid over several years. It’s likely any merger would result in substantial synergies between the two entities, improving Trinity’s outlook, although it would have to receive the approval of its pension fund trustees before getting the green light. The group currently has a pension deficit of around £400m.
Deep value
Even though the outlook for Trinity is mixed, I believe that the shares are an attractive prospect because of the group’s rock-bottom valuation.
Indeed, at the time of writing the shares trade at of forward P/E of just 2 and yield 8.7%. This valuation indicates that Trinity is priced for the worst case scenario and any improvement in trading could lead to a substantial re-rating of the shares. That’s why I think this is one of the best value Investments around.
Refocusing
Trinity is one of my favourite value investments and Eckoh (LSE: ECK) is one of my favourite growth stocks.
This company offers payment software for call centres, and over the past six years, its revenue has more than tripled as customers flock to its offering. However, despite revenue growth, profits have been unpredictable, which is why management decided to restructure the business. A trading update published today hints that these efforts are beginning to pay off.
Management’s decision to focus on large strategic accounts has resulted in six substantial UK contract wins occurring in the second half of its fiscal year across multiple service offerings. According to the trading update, one of these contracts is with “one of the UK’s largest mobile network providers.“
These contracts should mean the company is now well on its way to hitting analyst forecasts for growth. Currently, the City is expecting the group to report a net profit of £4m for fiscal 2018, rising to £5m for fiscal 2019. These forecasts translate into earnings per share of 1.6p and 2p respectively giving a 2019 P/E of 20.7 and a PEG ratio of 0.9.
