Smiths News — Interim dividend declared; yield attractions

Smiths News (LSE: SNWS)

Last close As at 10/10/2024

GBP0.57

−0.40 (−0.70%)

Market capitalisation

GBP142m

More on this equity

Research: Industrials

Smiths News — Interim dividend declared; yield attractions

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.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

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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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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