National and regional news publisher Reach (LSE: RCH) saw its shares leap by around 19% on Tuesday, 25 July.
But there could be more to come – perhaps much more.
After all, the valuation looks cheap and the stock was changing hands around 400p in 2021. So today’s level near 80p is tiny in comparison.
The catalyst for the rise was the half-year results report. And perhaps the most important part of that is the outlook statement because the market looks ahead.
On track and no negative surprises
The company said it’s on track with expectations for the full year, despite macroeconomic uncertainty. So that’s a reassuring update from a business that has been struggling. And a fallen share price that tells the story of its agonies.
City analysts had previously pencilled in a decline in earnings of almost 17% for 2023. But now we know the slide will not be worse than that – hence the ‘relief’ rally.
Beyond this year, analysts expect an essentially flat outcome for earnings. But that’s good because it will help to support the shareholder dividend – and what a dividend it is!
Even after the recent rise, the anticipated yield for 2024 is running above 9%. And the company has been increasing the payment every year since 2020 with analysts expecting further hikes this year and in 2024.
And businesses on their knees don’t do that. So, despite the yield raising eyebrows because it’s so high, it may well be sustainable.
Digital drag
However, Reach has suffered a setback in its efforts to move further towards digital delivery. The directors said there was a year-on-year decline in page views. And external factors have been impacting digital growth during 2023, so far.
One example of that is recent changes at Facebook and the way the social network provider made news content less of a priority. That move drove a “significant” decrease in customers being referred to Reach’s websites.
Nevertheless, the company has been fighting back. Chief executive Jim Mullen said the customer value strategy is driving higher quality and more sustainable digital revenues.
Mullen reckons a focus on customer data is helping the business achieve better performing revenues with greater exposure to directly sold and higher-value advertising.
Meanwhile, there’s an ongoing “resilience and predictability” from print revenues. And newsprint costs are beginning to decline, Mullen asserted.
Messy, but set to recover?
But any investor looking under the bonnet will see a messy set of half-year figures and plenty of issues to consider.
However, my feeling is that many of the uncertainties have been accounted for in the valuation. Even after the recent rise, the forward-looking earning multiple is running at just 3.6 for 2024.
I’m optimistic about the potential for the Reach business to recover. Although I could be wrong if operating conditions worsen from where they are now.
The situation isn’t perfect. But I’m seeing a value situation here from a business that looks set to recover in the years ahead. And the opportunity seems worth deeper research now.
But I’d also look at other stocks in the sector and consider those too.
