Last close As at 05/08/2026
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GBP179m
Research: Industrials
Smiths News announced yesterday that it has secured its fifth major publisher contract renewal with News UK & Ireland, publisher of The Sun, The Times and The Sunday Times. This follows new five-year agreements with Associated Newspapers, Telegraph Media Group (TMG), Frontline and Seymour Distribution, which collectively account for 65% of current newspaper and magazine revenues. We expect additional contract renewals to be secured in the next year. These renewals bolster the company’s cash-generative business model, providing a steady stream of revenue up to 2029/30. Our valuation remains unchanged at 89p, representing 78% upside to the current share price.
Written by
Smiths News |
Contract renewals cement future cash flows |
Contract renewals |
Industrial support services |
13 April 2023 |
Share price performance
Business description
Next events
Analysts
Smiths News is a research client of Edison Investment Research Limited |
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Smiths News announced yesterday that it has secured its fifth major publisher contract renewal with News UK & Ireland, publisher of The Sun, The Times and The Sunday Times. This follows new five-year agreements with Associated Newspapers, Telegraph Media Group (TMG), Frontline and Seymour Distribution, which collectively account for 65% of current newspaper and magazine revenues. We expect additional contract renewals to be secured in the next year. These renewals bolster the company’s cash-generative business model, providing a steady stream of revenue up to 2029/30. Our valuation remains unchanged at 89p, representing 78% upside to the current share price.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
08/21 |
1,109.6 |
31.9 |
11.3 |
1.5 |
4.4 |
3.0 |
08/22 |
1,089.3 |
32.3 |
11.7 |
4.2 |
4.3 |
8.4 |
08/23e |
1,056.6 |
33.1 |
11.0 |
4.2 |
4.5 |
8.4 |
08/24e |
1,024.9 |
33.5 |
10.8 |
4.2 |
4.6 |
8.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Contract renewals underpin attractive valuation
The current year has started well, with contracts representing 65% of newspaper and magazine sales revenues renewed until 2029/30, underpinning the sustainability of the business in the long term. These contracts include Frontline and Seymour (c £180m revenue pa, c 19% of newspaper and magazine revenues), Associated Newspapers (c £155m pa, c 16%), TMG (c £105m pa, c 11%) and News UK & Ireland (c £182m pa, c 19%). These deals are a key endorsement of the UK magazine market and Smiths News’ position within it as the UK’s foremost route to market. Other discussions with leading UK publishers are ongoing and we would expect the company to continue to secure additional contracts before the end of the current contract period.
Resilient business model in challenging times
Despite current economic volatility and inflationary pressures, the combination of sustained margin mix and tight cost control provides confidence that the group will maintain its strong performance in FY23. As mentioned in our last note, our expected 3% revenue decline in FY23 to £1,056.6m takes Smiths News back to the lower end of its average pre-COVID decline (2015–20) of 3–5% pa. We estimate that net debt will decrease significantly from £14.2m in FY22 to £2.6m in FY23, implying a healthy leverage ratio of 0.06x. We expect FY23 EBITDA to increase modestly to £43.2m, generating a margin of 4.1%. At end FY22, the balance sheet has distributable reserves of £118.7m to allow for future dividend payments.
Valuation: DCF valuation unchanged at 89p
Our DCF valuation of Smiths News remains unchanged at 89p/share, representing 78% upside to the current share price. The company trades on P/Es of 4.5x in FY23e and 4.6x in FY24e with a yield of 8.4%, which we believe is attractive for a company with such cash-generative characteristics. We will publish revised forecasts following the interim results, set to be released on 3 May.
Positive sentiment in light of contract renewals
Secured contracts see a surge in share price
The current year has started well, with contracts representing 65% of newspaper and magazine sales revenues renewed until 2029/30, underpinning the sustainability of the business in the long term. On the back of this encouraging news, it is positive to see investor sentiment turning, with a more than 50% increase in the share price in the last six months. Since the end of FY22, the group has announced that it has signed the following newspaper and magazine contracts:
■
Frontline (the UK’s largest magazine distributor) and Seymour (part of Frontline Group and the UK’s largest independent magazine distributor). These contracts cover all of Smiths News’ current distribution territories in the UK from 2025 to 2030, representing revenue of c £180m pa at current values. The two customers account for c 50% of the UK magazine market.
■
Associated Newspapers, publisher of the Daily Mail, The Mail on Sunday, i newspaper and New Scientist. This new agreement covers all of the group’s existing territories with Associated Newspapers and represents revenue of c £155m pa at current market values.
■
Telegraph Media Group, publisher of the Daily Telegraph and Sunday Telegraph. The contract has been renewed up to 2029, representing c 11% of newspaper and magazine revenues.
■
News UK & Ireland, publisher of The Sun, The Times and The Sunday Times, representing c 19% of current newspaper and magazine revenues.
|
Exhibit 1: Contracts by publisher and expiry |
|
|
Source: Smiths News |
Valuation of 89p presents plenty of upside potential
Our DCF valuation remains unchanged at 89p/share, representing 78% upside to the current share price of 50p. Smiths News trades on a P/E of 4.5x in FY23e, with a yield of 8.4% and the prospect of special dividends to bolster the yield as debt falls. In our experience, when ‘safe’ dividend yields exceed P/E ratios in absolute terms, it indicates a value opportunity. We will revise our forecasts following the interim results, due to be released on 3 May.
Exhibit 2: Financial summary
£m |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 August |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
1,303.5 |
1,164.5 |
1,109.6 |
1,089.3 |
1,056.6 |
1,024.9 |
Cost of Sales |
(1,217.5) |
(1,091.4) |
(1,036.2) |
(1,016.6) |
(985.2) |
(954.8) |
||
Gross Profit |
86.0 |
73.1 |
73.4 |
72.7 |
71.4 |
70.2 |
||
EBITDA |
|
|
60.1 |
40.4 |
44.9 |
42.9 |
43.2 |
42.9 |
Normalised operating profit |
|
|
44.0 |
35.4 |
40.6 |
39.3 |
39.3 |
39.0 |
Share-based payments |
(0.4) |
(0.3) |
(1.0) |
(1.2) |
(1.2) |
(1.2) |
||
Total adjusted operating profit |
43.6 |
35.1 |
39.6 |
38.1 |
38.1 |
37.8 |
||
Amortisation of acquired intangibles |
(0.1) |
(0.2) |
0.0 |
(4.4) |
0.0 |
0.0 |
||
Exceptionals |
(7.2) |
(7.8) |
(1.9) |
(2.5) |
(1.0) |
(1.0) |
||
Impairment |
0.0 |
(6.0) |
(1.6) |
1.2 |
0.0 |
0.0 |
||
Other financial costs |
0.0 |
0.9 |
3.5 |
2.5 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
(0.3) |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
36.3 |
22.0 |
39.3 |
34.9 |
37.1 |
36.8 |
||
Net Interest |
(6.0) |
(7.2) |
(8.7) |
(7.0) |
(6.2) |
(5.5) |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
38.0 |
28.2 |
31.9 |
32.3 |
33.1 |
33.5 |
Profit Before Tax (reported) |
|
|
30.3 |
14.8 |
30.6 |
27.9 |
30.9 |
31.3 |
Reported tax |
(8.4) |
(2.8) |
(4.3) |
(4.5) |
(6.8) |
(7.8) |
||
Profit After Tax (norm) |
29.6 |
25.4 |
27.6 |
27.8 |
26.3 |
25.7 |
||
Profit After Tax (reported) |
21.9 |
12.0 |
26.3 |
23.4 |
24.1 |
23.5 |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
(53.4) |
(18.7) |
(0.1) |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
29.6 |
25.4 |
27.6 |
27.8 |
26.3 |
25.7 |
||
Net income (reported) |
(31.5) |
(6.7) |
26.2 |
23.4 |
24.1 |
23.5 |
||
Basic average number of shares outstanding (m) |
246 |
245 |
244 |
239 |
239 |
239 |
||
EPS - basic normalised (p) |
|
|
12.01 |
10.39 |
11.33 |
11.66 |
11.03 |
10.76 |
EPS - diluted normalised (p) |
|
|
11.98 |
10.28 |
10.83 |
11.03 |
10.53 |
10.28 |
EPS - basic reported (p) |
|
|
(12.78) |
(2.74) |
10.76 |
9.81 |
10.11 |
9.84 |
Dividend (p) |
1.00 |
0.00 |
1.50 |
4.15 |
4.15 |
4.15 |
||
Revenue growth (%) |
N/A |
(10.7) |
(4.7) |
(1.8) |
(3.0) |
(3.0) |
||
Gross Margin (%) |
6.6 |
6.3 |
6.6 |
6.7 |
6.8 |
6.8 |
||
EBITDA Margin (%) |
4.6 |
3.5 |
4.0 |
3.9 |
4.1 |
4.2 |
||
Normalised Operating Margin |
3.4 |
3.0 |
3.7 |
3.6 |
3.7 |
3.8 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
31.5 |
66.5 |
47.1 |
41.9 |
34.4 |
12.8 |
Intangible Assets |
10.1 |
4.0 |
2.3 |
1.7 |
(0.9) |
(3.5) |
||
Tangible Assets |
10.9 |
9.4 |
9.4 |
8.6 |
9.8 |
11.0 |
||
Investments & other |
10.5 |
53.1 |
35.4 |
31.6 |
25.5 |
5.3 |
||
Current Assets |
|
|
181.2 |
165.9 |
139.1 |
147.5 |
145.2 |
141.9 |
Stocks |
16.2 |
14.1 |
13.2 |
15.6 |
14.8 |
14.3 |
||
Debtors |
124.2 |
101.2 |
106.6 |
95.7 |
95.1 |
92.2 |
||
Cash & cash equivalents |
24.0 |
50.6 |
19.3 |
35.3 |
35.3 |
35.3 |
||
Other |
16.8 |
0.0 |
0.0 |
0.9 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(229.7) |
(283.9) |
(167.5) |
(157.2) |
(139.5) |
(111.6) |
Creditors |
(173.7) |
(139.5) |
(136.5) |
(140.3) |
(134.2) |
(109.7) |
||
Tax and social security |
0.0 |
(1.7) |
(0.3) |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
(46.1) |
(130.1) |
(21.2) |
(8.0) |
3.6 |
(1.9) |
||
Other |
(9.9) |
(12.6) |
(9.5) |
(8.9) |
(8.9) |
0.0 |
||
Long Term Liabilities |
|
|
(57.3) |
(30.1) |
(76.4) |
(64.2) |
(58.2) |
(48.8) |
Long term borrowings |
(49.3) |
0.0 |
(50.1) |
(39.1) |
(39.1) |
(39.1) |
||
Other long term liabilities |
(8.0) |
(30.1) |
(26.3) |
(25.1) |
(19.1) |
(9.7) |
||
Net Assets |
|
|
(74.3) |
(81.6) |
(57.7) |
(32.0) |
(18.1) |
(5.7) |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
(74.3) |
(81.6) |
(57.7) |
(32.0) |
(18.1) |
(5.7) |
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
60.1 |
40.4 |
44.9 |
42.9 |
43.2 |
42.9 |
||
Working capital |
(3.9) |
(5.3) |
(1.8) |
2.8 |
(4.7) |
(21.2) |
||
Exceptional & other |
(7.7) |
(13.4) |
(1.3) |
(4.4) |
(2.2) |
(2.2) |
||
Tax |
(2.6) |
0.0 |
(6.3) |
(5.3) |
(6.8) |
(7.8) |
||
Other |
(22.9) |
1.7 |
5.9 |
13.8 |
6.9 |
6.9 |
||
Net operating cash flow |
|
|
23.0 |
23.4 |
41.4 |
49.8 |
36.4 |
18.5 |
Capex |
(8.1) |
5.3 |
(2.4) |
(1.9) |
(4.2) |
(4.2) |
||
Acquisitions/disposals |
0.0 |
(10.2) |
6.5 |
14.0 |
0.0 |
0.0 |
||
Net interest |
(5.1) |
(8.0) |
(9.4) |
(8.0) |
(4.0) |
(3.3) |
||
Equity financing |
0.0 |
(0.7) |
(2.6) |
(2.6) |
(0.8) |
(0.8) |
||
Dividends |
0.1 |
(2.2) |
(1.0) |
(5.9) |
(9.8) |
(9.8) |
||
Other |
(2.8) |
(15.6) |
(5.9) |
(6.4) |
(6.0) |
(6.0) |
||
Net Cash Flow |
7.1 |
(8.0) |
26.6 |
39.0 |
11.6 |
(5.6) |
||
Opening net debt/(cash) |
|
|
79.3 |
72.1 |
79.7 |
53.2 |
14.2 |
2.6 |
FX |
0.1 |
(0.1) |
(0.2) |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.5 |
0.1 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
72.1 |
79.7 |
53.2 |
14.2 |
2.6 |
8.1 |
|
Source: Company accounts, Edison Investment Research |
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Research: Real Estate
Triple Point Social Housing REIT’s (SOHO’s) FY22 results were robust. Indexed rent growth compensated for higher debt costs and expected credit losses, and the DPS target was met. Income and dividends have grown each year since listing, while the company has generated strong social returns. We expect progress in FY23 despite a continuation of credit losses, for which SOHO has set out a path to recovery. Sector issues raised by the regulator continue to generate uncertainty despite a positive response and good performance from many lessees, and tangible progress at others. This seems unrecognised in the share price.