Research: TMT
Reach’s FY23 figures were broadly in line with market expectations. The key messaging, though, is that the two big uncertainties overhanging the stock are being clarified in timescale and in quantum. Firstly, agreement has been reached with the pension trustees, substantially reducing the ongoing funding requirement from FY28. Secondly, December’s High Court ruling on time limitation for the historical legal issues gives far better clarity on the amounts to be paid out and shortens the execution timescale. This gives management much improved context in which to plan the necessary investment from cash flows to continue to boost the data-driven revenue line. We would expect the substantial valuation discount to start to narrow.
Reach |
Marked progress on issue resolution
|
Media |
QuickView
6 March 2024 |
Share price graph
Share details
Business description
Bull
Bear
|
Reach’s FY23 figures were broadly in line with market expectations. The key messaging, though, is that the two big uncertainties overhanging the stock are being clarified in timescale and in quantum. Firstly, agreement has been reached with the pension trustees, substantially reducing the ongoing funding requirement from FY28. Secondly, December’s High Court ruling on time limitation for the historical legal issues gives far better clarity on the amounts to be paid out and shortens the execution timescale. This gives management much improved context in which to plan the necessary investment from cash flows to continue to boost the data-driven revenue line. We would expect the substantial valuation discount to start to narrow.
Data-driven revenues show way forward
The FY23 figures show a clear contrast between ‘standard’ participation in the digital programmatic advertising market and in using first-party data to add value. Open market yields were very weak (revenue/page view down 35%) with referral traffic hit by Facebook de-emphasising news in its feeds (down 24%), resulting in these digital revenues falling 22%. In contrast, data-driven digital revenues only dipped 4%, with revenue/page view up 23%, and Reach offering advertisers the ability to address the audiences that they want, when they want them. There is strong potential for income growth from affiliates, partnerships and e-commerce, given Reach’s 36m digital audience. One-third are registered, generating valuable data. Print continues to be resilient, with habitual buyers, and helped by cover price increases.
Cash obligations coming into focus
With the uncertainty over the potentially highly significant sums needed to resolve the pensions and claim settlement bills, Reach has been unable to push ahead as fast as it might have liked on building out the platform and growing its data-driven revenue base (and therefore rebuilding margins). The agreement with the MGN scheme trustees over the 2019 and 2022 reviews should decrease the payments by c £40m from FY28 (FY23 funding: £60m). The cost of settling historical legal claims is now put at c £18m, to be paid over FY24 and FY25, enabling a line to be drawn. 95% operating cash flow conversion shows the strength of the underlying business. Reach recently cancelled its share premium account, lifting distributable reserves and underpinning the payment of a dividend that gives a substantial yield.
Valuation: Deeply discounted
Reach’s share price still reflects the historical uncertainties. We would now expect the valuation to start moving towards reflecting the underlying business prospects.
|
Consensus estimates
Source: Refinitiv. *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
|
|
Research: Energy & Resources
HELLENiQ ENERGY reported its final results on 29 February. Adjusted net income of €0.6bn was lower than our forecast of €0.64bn. A positive surprise was that the board is recommending a final dividend of €0.60 per share, which was above our expectation of €0.30 per share. We believe this reflects management’s confidence in the current shape of the business. The balance sheet has been strengthened year-on-year, with net debt reduced from €1.94bn (at end-FY22) to €1.63bn. Our forecasts are under review.