Is all the bad news in the prices of Daily Mail and Trinity Mirror?
The eponymous newspapers of Daily Mail & General Trust (LSE: DMGT) and Trinity Mirror (LSE: TNI) couldn't be more different.
The conservative Daily Mail is the newspaper of choice of Middle England; the Labour-supporting Daily Mirror pitches for readers in the competitive working-class market.
The companies themselves are as different as the editorial stances of their flagship newspapers.
Lord and lady
Daily Mail & General Trust is headed by beneficiary of primogeniture Lord Rothermere, the fourth generation of the family to lead the company. Daily Mail has a dual share structure of voting and non-voting shares, which ensures the family retains control.
Trinity Mirror's chief executive, Sylvia 'Sly' Bailey, worked her way up from selling advertising. She sits on an eight-strong board of directors, with an equal male-female split; and the company has a plurality of shareholders.
Both companies went into the recession with their balance sheets loaded up with debt and, like a lot of older businesses, onerous pension obligations. Their share prices -- particularly Trinity Mirror's -- were hammered by the market.
The pair rallied strongly in 2009, though without coming close to their pre-credit crunch highs.
Since then, Trinity Mirror's share price has been in erratic decline, while Daily Mail's saw further gains in 2010, but has gone into reverse since the start of this year. Daily Mail's shares slumped further on Thursday after it announced its half-year results.
Daily Mail has massively reduced its reliance on newspapers over the last decade. Today, it's better described as a media conglomerate.
It has a wide range of business-to-business (B2B) operations, in areas as diverse as risk management, information and events, including a majority stake in listed Euromoney Institutional Investor (LSE: ERM).
It wasn't the performance in the six months to 3 April that spooked the market on Thursday. Group revenue was up 3% to £991m and operating profit up 8% to £144m, led by B2B operations.
Operating cash flow was ahead of profit at £149m and net debt was down a tad, with a further reduction expected in the second half.
It was the report of performance since the half-year end and the outlook statement that the market didn't like. In April and May, the decline in advertising revenues accelerated markedly, with the struggling regional newspapers hit particularly hard.
While the company said it expects overall growth for the full year to be ahead of last year, thanks to continuing B2B momentum, it cautioned that trading within its consumer businesses is "more volatile with uncertain prospects" as a result of the economic environment and fragility of consumer confidence in the UK.
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Trinity Mirror is more print-media focused than Daily Mail. It owns five national newspapers and over 160 regional titles, and its newspaper print operation also serves third parties.
It has been growing its digital business, but doesn't have the breadth and depth of Daily Mail.
In a trading statement earlier this month, it cautioned along similar lines to Daily Mail about the challenging environment it faces. It affirmed, though, that it anticipated performance in 2011 would be in line with expectations -- expectations that weren't of the Dickensian variety it should be said.
The question for investors is whether these two companies' shares are so beaten down that the bad news is already in the price.
If Daily Mail only manages the same earnings-per-share (EPS) this year as last year (50p), then at the current share price of around 450p it's on a price/earnings (P/E) ratio of 9, and a trailing dividend yield of 3.6%.
Given this is a FTSE 250 company, with a range of valuable media assets, I reckon 450p could look cheap in the longer term, with a reasonable dividend providing some recompense in the short term.
At the same time, I wouldn't be surprised to see the shares drift lower and might be inclined to hold out for a slightly price.
In the case of Trinity Mirror, expectations are for lower EPS this year than last year. The consensus among analysts is for not much more than 24p EPS. With the share price at 47p that's a P/E of a smidge under 2!
Not surprisingly, such a low rating has caught the eye of investors with a leaning towards higher risk/higher reward opportunities. Indeed, this smaller cap company (£121m) was the subject of some debate on our Paulypilot's Pub discussion board after its recent trading update.
While I wrote about similarly lowly-rated media company Yell (LSE: YELL) last week as an out-and-out gamble, I'd put Trinity Mirror a cut above that -- not least because it has a good slug of valuable freehold property on its balance sheet.
On a P/E of less than 2, Trinity Mirror is clearly at the speculative end of the investment spectrum. But for speculative investors, 47p is surely a tempting price.
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