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Interim dividend declared; yield attractions

Smiths News 21 June 2021 QuickView
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Smiths News

Interim dividend declared; yield attractions

Distribution

QuickView

21 June 2021

Price

40.95p

Market cap

£100m

Share price graph

Share details

Code

SNWS

Listing

LSE

Shares in issue

245.2m

Business description

Smiths News is the UK's largest newspaper and magazine wholesaler, with an approximate 55% market share. It distributes newspapers and magazines on behalf of the major national and regional publishers. Ancillary businesses include Dawson Media Direct (DMD) and Instore.

Bull

Distribution volumes are predictable and cash generative.

Major contracts secured until at least 2024.

Dividend payments restarted; special payments possible.

Bear

Newspaper and magazine volumes in slow but structural decline.

Growth opportunities are scarce.

Debt remains elevated but declining.

Analyst

Andy Murphy

+44 (0)20 3077 5700

The declaration of the interim dividend, albeit modest, is the next step in the recovery of Smiths News as it signals that not only was trading at the interim stage in line with management expectations, but also that the company is on track to meet market expectations for the full year. Trading beyond the current year also has good visibility given that most of its contracts are in place until at least 2024. Debt is expected to fall to 1.0x EBITDA by the end of FY23, and dividends are well covered and growing. The stock trades on a forward P/E of 4.2x in FY22e, which is undemanding, with an attractive 5.6% yield.

Payment of 0.5p/share, goes ex-dividend on 1 July

At the interim results on 5 May, Smiths News stated its ambition to declare an interim dividend on condition that trading performance remained in line with management expectations. Today, it declared an interim dividend of 0.5p/share, which goes ex-dividend on 1 July and will be paid to shareholders on 30 July.

Dividend declaration implies solid trading

The declaration implies that trading in the period from the interims until now, and for the next few months, is at least in line with management expectations. This paves the way for the declaration of a final dividend in respect of the current year, ending on 31 August, which will be announced with the prelims on 4 November.

Consensus estimates imply y-o-y stability

Consensus forecasts, which are based on the estimates of two analysts, show relatively stable PBT and EPS for FY21 versus FY20, and include the expectation of a total dividend of 1.6p for FY21 versus EPS of 9.2p. This appears to be consistent with the 0.5p interim dividend declared today on the assumption of a one-third/two-thirds split in the payout. It also implies that the FY21 dividend is c 6x covered by consensus earnings, although the company is targeting cover of 2x, which could imply upside to payments after 2023 when the dividend cap is removed.

Valuation: Sub 5x P/E, 5.6% yield in FY22e

Consensus EPS of 9.2p in FY21e and 9.8p in FY22e implies a P/E of below 5x in both years, which is undemanding in our view. The resumption of the dividends is also encouraging and consensus implies a yield of 3.9% this year, rising to 5.6% in FY22e, which we believe is attractive. The company also has a longer-term ambition to pay ‘special’ dividends from excess cash.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/19

1,467.9

23.2

7.9

1.0

5.2

2.4

08/20

1,164.5

27.9

9.6

0.0

4.3

0.0

08/21e

1,076.0

28.0

9.2

1.6

4.5

3.9

08/22e

1,031.0

30.0

9.8

2.3

4.2

5.6

Source: Refinitiv

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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United Kingdom

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United States of America

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NSW 2000, Australia

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