Shares in media group St Ives (LSE: SIV) easing this morning after the group issued a rather upbeat set of full-year results.
The company reported today that for the 52 weeks ended 29 June revenue had increased by 7% to £368m, while adjusted profit before tax fell 8% to £30.4m and adjusted basic earnings per share declined 13% to 17.6p. On a statutory basis, the company reported a loss for the period of £5.7m and a loss per share of 5.9p.
For a company that saw 40% of its market value wiped out in a single day earlier this year after issuing a profit warning, these results from St Ives are encouraging. What’s more, it would appear that the company’s management is more optimistic about the future than it was just a few months ago.
Indeed, back in April management warned that group trading was being hammered by ”global economic uncertainty“ resulting in “greater caution in the allocation of marketing budgets“ and “significant projects being deferred or cancelled.“ However, alongside today’s results Matt Armitage, Chief Executive declares that St Ives is “making encouraging progress in bringing in new projects from both existing and new clients” and the group is “well positioned to make further progress this year.“
All change
It would appear that a lot has changed at St Ives over the past few months and after the shock earlier this year, the company is now back on track. Still, personally, I would want to see more from the group before considering it as a potential investment.
St Ives has a history of over-promising and under-delivering. Before the profit warning in April, City analysts were forecasting a pre-tax profit of £37.4m for the year ending 31 July, based on management’s guidance. Last year the company reported a pre-tax profit of £8.7m and over the five years between 2011 and 2015 the group only reported unadjusted cumulative pre-tax profits of £49.4m.
St Ives is trying to diversify away from its legacy printing business towards media. In many ways the group is trying to become a mini WPP (LSE: WPP), with management using bolt-on acquisitions to expand into new markets. But unlike WPP, St Ives is struggling to build any kind of growth momentum.
Under the stewardship of Sir Martin Sorrell WPP’s pre-tax profit has expanded by 50% since 2011,as the company has successfully integrated numerous bolt-on acquisitions designed to boost growth. As a result, investors are willing to pay a premium to buy WPP’s shares which currently trade at a forward P/E of 16.4. City analysts have pencilled in earnings per share growth of 16% for this year. Meanwhile, shares in St Ives currently trade at a lowly P/E of 7.7 reflecting market sentiment towards the company.
So, is St Ives a buy after today’s results? It doesn’t look like it. The group is a serial disappointer, and when you compare the group to other sector peers such as WPP, it’s clear why the market is placing such a low valuation on St Ives’s shares.
