UK shares to buy: this small-cap gem continues to exceed expectations

This business is doing well and has the potential to grow across all its divisions in the years ahead, making it one of several UK shares to buy for me.

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I’ve been keen on Harry Potter publisher Bloomsbury Publishing (LSE: BMY) for some time. I think it’s a quality enterprise and a UK share to buy.

Why I think Bloomsbury is a UK share to buy

The multi-year financial record has some reassuring figures. Operating cash flow has been generally rising. And the directors have used some of the incoming cash to keep the shareholder dividend rising. In short, I think the business is in good health.

And today’s full-year results report to 28 February contains more good news. Chief executive Nigel Newton said a 22% year-on-year increase in pre-tax profit is “ahead of expectations.” 

To mark the occasion, the company is rewarding shareholders with a special dividend worth 9.78p per share on top of the full-year dividend declared at 7.58p — happy days for existing stock owners.

I reported last October the interim figures were ahead of directors’ earlier expectations. And I saw the stock as a decent buying opportunity. Back then, the share price was near 252p. Today, it’s around 337p and getting close to the all-time high achieved in the summer of 2005, near 370p.

Harry Potter remains important to the business

The earlier success of the business was driven by the phenomenon of the Harry Potter series. However, Bloomsbury has more strings to its bow than just J K Rowlings’ much-loved creations. For example, the company breaks its results down into figures for Adult Trade, Special Interest and Academic & Professional publishing, as well as the Children’s Trade division that includes the Harry Potter titles.

However, I’m not underestimating how important Harry Potter remains to the business. The Children’s Trade division produced around 40% of total revenue for the year and around 60% of overall operating profit.

Children’s Trade sales recorded “excellent” growth, increasing 26% compared to the prior year. And adjusted profit from the division before tax shot up by 42%. Within those figures, sales of the Harry Potter titles moved 7% higher than the previous year.

According to the directors, Harry Potter and the Philosopher’s Stone was the third bestselling children’s book of the year on UK Nielsen Bookscan. And Harry Potter and the Philosopher’s Stone, Harry Potter and the Chamber of Secrets and Harry Potter and the Half-Blood Prince were all Sunday Times bestsellers in the year.

I’d aim to buy for a long-term hold

So I’d be fooling myself if I believed Bloomsbury had moved away from heavy reliance on the series. And that’s one of the risks with the stock, as I see it. If Harry Potter declines in popularity in the future, we could see a big dent in the trading figures. And it’s some 23 years since the boy-wizard first helped the firm hit the big time.

Another risk now is that the pandemic appears to have boosted sales because of the wider uptake of reading. Perhaps that’s been related to the government’s lockdown and furlough policies leaving people with more time on their hands. The effect could reverse as the pandemic fades.

Nevertheless, despite a full-looking valuation, I think Bloomsbury is a UK share to buy for me on dips and down-days for the long-term. I think the business is doing many things right and has the potential to grow across all its divisions.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Bloomsbury Publishing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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