Bloomsbury is unfairly valued like a complete has-been, post Harry Potter.
Zoom right out on Bloomsbury Publishing (LSE: BMY) and the big picture you get is that of a small company that made a bomb from the Harry Potter phenomenon now looking to use the cash wisely to generate future income.
The alternative snapshot view is that since JK Rowling stopped writing books about the schoolboy magician, earnings have plummeted and the company has nowhere to go.
And it's this latter view which has prevailed in the time since the wee wizard put down his wand. Bloomsbury's shares, which reached the giddy heights of 386p at the peak of Potter mania, now languish at 112.5p, valuing the publisher at £83m.
Undervalued
This is an undervaluation in my opinion as I pointed out in March. The company is doing the right things to steady the ship and make good use of its relatively huge pile of cash and assets, as Thursday's half-year results confirm.
Again we learn that the company is growing both earnings and dividends but the market seems to value Bloomsbury like yesterday's news.
The headline numbers show a decline in pre-tax profit compared with the previous year. But this is largely due to lower returns on the cash held and lower average cash balances. Operationally, underlying pre-tax profit increased to £1.3m (2009, £1.2m) on revenues up a little at £36.8m.
The interim dividend was increased to 0.81p. Barring any unforeseen disasters in the second half, the shares are yielding a little over 4%.
But what I particularly like about Bloomsbury is its asset base. The company has cash of £33.5m, net current assets of £74.5m, overall net assets of £112m, and net tangible assets of almost £73m.
Exciting enough
So it's been afforded a very measly valuation but isn't completely without excitement -- whatever the market may think. Digital publishing is growing quickly and Bloomsbury is making moves to capitalise on this while continuing to focus on its core business of publishing quality books.
First-half sales were driven by popular books such as "Operation Mincemeat", "Alex's Adventures in Numberland" and "The Berg Encyclopedia of Fashion and Costume". Each to their own; people need regular entertainment and Bloomsbury has an enviable track record in providing it.
The second half will see the re-launch of the Harry Potter series in November with new jackets to coincide with the seventh film in the series. Let's just hope these are must-have editions for all the world's Harry Potter "anoraks"!
There will also be the re-release of Elizabeth Gilbert's multi-million best seller "Eat, Pray, Love" to tie in the Julia Roberts film, and a repackaged "Wombles" series.
Personally, I won't be rushing out to buy any of these, but I will be taking an interest in Bloomsbury's contract to digitize and publish the papers of Winston Churchill's entire archive of papers. These will be published electronically in libraries for the first time during 2012 -- and will include private letters and notes made by the former prime minister.
The group also has plans to launch a new international company, Bloomsbury Australia Publishing Ltd, in Sydney next January.
Bottom line value
The brokers envisage earnings per share of 8.8p next year. If this happens, the shares are on a price-to-earnings ratio of 13. Take out the cash and this falls to a much more tempting 8 times -- particularly when you take into account the current assets.
Bloomsbury may not be exciting enough for many investors, but it offers the best of all worlds for me. It is patently undervalued, growing earnings and dividends from a position of strength and generally re-positioning itself in the post Harry world to build on its previous success through shrewd investment.
The bottom line is that it's excellent value.
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David owns shares in Bloomsbury Publishing.
