Sparks - Smiths News

Smiths News delivered a robust set of FY26 preliminary results for the year ending 31 August which were in-line with upgraded market expectations. Revenues of £1,064m were -2.6% y-o-y with newspapers and magazine revenue -3.9%, collectables +31.9% (boosted by the FIFA Men’s World Cup and Pokemon as flagged in the October trading statement), and growth initiatives +31.3% including recycling revenues up 52% y-o-y. Adjusted operating profit of £38.7m was -1.0% y-o-y and 4% ahead of company consensus. Adjusted profit after tax and EPS were up y-o-y by 1.5% and 1.8% respectively benefitting from lower finance charges and a supportive tax rate. Operational efficiencies of £4.5m were in-line with management expectations and demonstrate continued progress in offsetting the well-flagged long-term decline of the newspaper and magazine market. The dividend of 5.65p was better than the 5.2p the company had referenced in recent contract win releases. Free cash flow of £21.4 was strong and the company ended they year with net cash of £3.9m (£3.3m). We regard the results as robust against the well-known backdrop of a newspaper and magazine market consistently guided by management to decline annually by 3-5%. The company reiterated that they have seen a positive start to FY27.

Along with the results the company, as promised, provided guidance for its transformational Go National programme which is supported by multiple recent contract wins which are expected to deliver c £375 of additional revenues once they are all in force. These contracts help provide revenue visibility as far as 2037. Since the first of these transformational contracts was announced in June 2026 the company have committed to provide financial guidance for the required investment. Today Smiths News outlined the three phases of the transformational Go National programme. The ‘Build’ phase represents implementation investment. It positions the company for the start of the first national distribution contract in July 2027 which requires £21-27m of costs split evenly between capex and the one-off adjusting items such as costs relating to the increased headcount required to establish the national network. Management expect the ‘Transition’ phase  to reflect the early-life impact of the programme with net costs of £7-9m in FY27 before net profit of £0.2m in Fy28. The company anticipate a material uplift to profitability of £12-18m in the ‘Scale’ phase from FY29 onwards. Smiths News can fund this investment from existing cash resources and financing arrangements, and has guided for a dividend of at least 5.2p in FY27 implying a yield of 6.4% at the 81p closing price on the 3rd November. The company continue to invest in technology to drive improvements in logistics and warehousing operations.

We continue to believe the investment in Go National reflects sensible capital allocation by the company as it establishes a national distribution platform to leverage growth opportunities across the existing business as well as in new categories and recycling. The company expect to hear about the results of their tender for the UK Deposit Return Scheme for recycling by the end of 2026. Management have laid out a clear path to their anticipated material uplift in profits from a programme from which the company expects to earn returns substantially ahead of their cost of capital.

While the upfront costs of the transformational Go National programme are likely to weigh on profits in FY27 the company expect the programme to deliver £0-2m of profits from FY28, earn returns above WACC, have committed to a robust dividend, and are laying the bedrock for growth supported by overlaying products and additional services.