The Motley Fool

Record results suggest the future could be even better for this FTSE 250 growth stock

Shares in specialist media company Future (LSE: FUTR) rose by 2.6% today on the news that “record levels of profitability” had been achieved for 2019. Statutory operating profit and earnings grew by 403.8% and 179.3% year on year (YoY) respectively with group revenue growing by 70.3% over the year from £130.1m to £221.5m.

I have kept an eye on Future since it popped up in my search for stocks that could handle Brexit by shrugging off the referendum result with double-digit gains, and it has not disappointed. It has risen from 1,184p then to 1,492p at today’s close, and today’s results do suggest more of the same is to come. But let’s not get to carried away just yet.

Sign up for FREE issues of The Motley Fool Collective. Do you want straightforward views on what’s happening with the stock market, direct to your inbox? Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio. Click here to get started now — it’s FREE!

Revenues are being bought

Future collects subscription revenues for print publications. Its media division monetises content that appears on websites that it owns through collecting e-commerce commissions and selling advertising space. It also profits from events it arranges around the interests that its websites and magazines cater too.

At its heart, Future is a publisher, but one that caters to lots of specialist and niche interests. Having passionate and loyal customers helps explain the 11% organic revenue growth reported. Yes, you read that right. Growth of existing revenue sources over the year was still decent but acquired revenues really made the difference.

Future’s strategy is one of growing what it has (its existing online audience grew by 31%) but acquiring other brands as well and ramping up revenues from them. Over the last year, three online brands and one print brand have been purchased across the cycling, tech, and targeted business news sphere.

The cost could be as high as £253m, but that depends on the brands hitting certain performance targets once integrated. It’s a smart acquisition strategy. It is also paying, at the most, about 0.82p for every £1 in acquired annual revenue, which isn’t too bad at all.

Future also tries to launch new brands with the acquired editorial and content expertise brought on board – one has been launched this year already with the help of the new recruits – and steadily migrates purchased websites over to its own template platform and applies its own advertising solution. 

Low earnings base

The growth in operating profit and earnings was impressive, but they grew from just £5.3m and £2.9m to £26.7m and £8.1 million respectively. Operating margins are now 12.05% up from 4.07% the year before, so overall I’m not blown away by performance in this area, but I was not expecting to be.

Future is a growth company but is already turning a small profit, and generating cash from operating activities (£49.1m last year to put a number on it).

However, Future will have to raise funds for the two planned acquisitions and any future ones because its operating cash flows won’t cover them, which means more borrowings or shares in circulation. Solvency is not an issue at present, but it’s something to keep an eye on going forward.

Am I buying?

Not just yet. There is a deferred consideration charge of £43.9 sitting in with £116.6m of current liabilities, which will have to be paid if certain targets are met, and current assets don’t cover it. Potential liquidity issues make me nervous, and I want them to go away before I can invest in what could be a continuing growth story.

There’s a ‘double agent’ hiding in the FTSE…

We recommend you buy it!

You can now read our new stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.