Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Bloomsbury Publishing (LSE:BMY)
Why we like it: “Bloomsbury (LSE: BMY) owns the print rights for the Harry Potter books in the UK, and remarkably, the first book in the magical wizard series is the third-bestselling children’s book of this year, some 26 years after it was first published. Talk about valuable intellectual property! The company is also nurturing star author Sarah J Maas, publishing 15 titles so far by the popular fantasy novelist, whose catalogue of titles saw a whopping 51% rise in sales in the last year.
“But while strong sales of consumer titles are welcome, its non-consumer division – representing roughly 37% of total sales last year – could provide a substantial long-term growth driver. The company has transformed into a serious player in education in recent years. Through its digital platform – Bloomsbury Digital Resources (BDR) – the company provides educational resources to academic libraries and institutions. Bloomsbury expects that BDR should achieve organic sales growth of around 40% by 2027/28 – and it also represents a tantalising margin opportunity, in our view.”
Why we like it now: Since Bloomsbury featured on our Best Buys Now list last month, the company has released a trading update announcing that profit is expected the be “materially ahead of current market expectations” for the financial year ending in February 2024. Management said that this follows “exceptionally strong trading” in its consumer division – particularly for the catalogue of fantasy author Sarah J. Maas. Encouragingly for the longer term, Bloomsbury – which has published all of Maas’ books to-date – has agreed a further four-book contract with the writer, on top of three books already under contract.
Its non-consumer division continues to trade in line with expectations. Its long-term strategy for the division is to deliver high margin, repeatable revenues from digital subscriptions. It’s reassuring then that renewal rates for its Bloomsbury Digital Resources platform are above 90% and the company said earlier this year that it’s “confident” in its longer term margin targets for the segment. Despite an impressive growth track record and strong recent results, the company is trading at just under 14x expected earnings currently, which seems undemanding to us. Therefore, it remains a Best Buy Now for December.
