The potential impact of Brexit on UK businesses remains an area of massive uncertainty. One company that might well suffer in the event of a full-blown recession would be Daily Mail owner Daily Mail and General Trust (LSE: DMGT).
Today’s results show that the group’s revenue rose by 4% to £1,917m last year, while adjusted pre-tax profit fell by 7% to £260m. The dividend has been increased by 2.8% to 22p per share, giving a yield of about 2.7%.
DMGT describes today’s results as “a resilient performance in challenging markets.” Investors seem impressed, or perhaps relieved. The shares rose by about 7% in the opening hour of trading, making DMGT one of today’s top risers.
Lots of businesses, but one risk?
DMGT’s business doesn’t just revolve around the Daily Mail newspaper. Around two-thirds of profits come from the B2B division, which includes events management, data services for commercial customers, and trade publishing. DMGT also owns a 31% stake in online operator Zoopla Property Group.
It’s a complex business for investors to understand. However, one common thread that runs through many of DMGT’s businesses is that they depend on marketing and advertising expenditure by clients.
The most obvious example of this is the Mail newspaper business, where print advertising revenues fell by 12% last year. But this was probably a result of the gradual decline of printed newspapers, rather than the condition of the UK economy.
DMGT operates in a number of other countries, but I don’t see any reason why Brexit in itself should cause problems. What could be a problem though is if Brexit triggers a UK recession. This could hit property-related profits and push businesses to cut spending in areas such as advertising, marketing and training.
Is DMGT a buy?
In September, DMGT announced plans for a strategic review of all its businesses. Further disposals look likely as the group continues to optimise its portfolio.
The outlook for the group seems uncertain to me. Its complex mix of businesses makes it hard to pinpoint the biggest risks and opportunities. With DMGT now trading on about 15 times forecast earnings, I’d rate the stock as a hold.
I’m more bullish about this stock
Hardly a week goes by without global advertising and marketing group WPP (LSE: WPP) making an acquisition. But these are usually small deals, which are integrated into WPP’s global network of companies. It sounds complex — and it is — but I believe WPP’s size and geographic diversity mean that as investors, it’s safe for us to view the group as an integrated unit.
WPP’s earnings per share have doubled since 2010, and are expected to keep rising. Earnings forecasts for the current year are 10% higher than they were 12 months ago, thanks to strong trading during the first three quarters.
Although WPP would be hit by a major UK or European recession, I think its scale and international presence should help to reduce the likely impact of Brexit.
WPP stock isn’t obviously cheap, on a forecast P/E of 15. However, earnings are expected to rise by 13% next year, giving WPP a more modest 2017 forecast P/E of 13.5. In my view, the shares are quite reasonably priced.
