Shares in Daily Mail and General Trust (LSE: DMGT), owners of its namesake newspaper, Metro and associated websites, fell as much as 5% in early trading today after the company reported underwhelming Q1 figures.
Underlying revenue fell 1%, although circulation revenue across its paper portfolio was up 3%, as a price hikes counteracted a decline in volumes.
Falling ad revenue
The on-going reduction in circulation numbers reduces the value of print marketing, because adverts reach fewer consumers. Unsurprisingly then, print underlying advertising revenues fell 11%, although the company reported that its “Mail” titles performed more robustly.
The £9m increase in online advertising generated by the Mail websites, for a total £32m, counteracted the decline of £5m, or 12%, to £36m in print advertising revenues at the Daily Mail and the Mail on Sunday for the quarter.
The company has also completed the second stage of its plan to reduce its shareholding in finance website Euromoney, by allowing the company to buy back a significant chunk of shares. If the proceeds of this deal are added to the balance sheet, the company’s net debt reduces to £563m from £688m.
Print may be suffering, but it is possible that the other segments of the business, which include event organisation and online business-to-business information services could prop up profits.
Paradigm shift
Compared to sector peer Trinity Mirror (LSE: TNI) these figures are impressive. Both companies are suffering from the paradigm shift from print to digital news, but Daily Mail’s flat like-for-like sales look positively gleaming compared to Trinity’s.
Trinity Mirror expects an 8% like-for-like drop in Q4, following a 9% decline in Q3 and an 8% decline in the first half. Those are some pretty consistent revenue slips. Print advertising and circulation revenue is expected to fall by 17% and 5% respectively, while digital seems likely to counteract some of that fall with a predicted 18% gain.
The main positives to take from Trinity’s last trading update was progress towards settling the civil phone-hacking claims that have dogged the company for years, although at a likely total cost of £22m.
A restructuring program has vastly improved performance at the company over the last few years, in spite of rapidly declining revenues.
I’m avoiding this entire sector because it’s hard to predict what these companies will look like in ten years time. Often companies in declining sectors spend years in a sort of financial purgatory, regardless of an eventual positive or negative outcome.
Daily Mail and General Trust currently trades on a P/E of around 12. This might not be expensive in the traditional sense, but the on-going sector headwinds more than justify this rating in my view.
Trinity Mirror, on the other hand, does actually look a little undervalued at 3 times predicted earnings and therefore may be worth a flutter. However, I’ll still be steering clear of this company; I’m a long-term buy-and-hold investor and the slow death its print portfolio could easily destroy value, especially when significant cost cuts are a cornerstone of its strategy.
