Buyers love Daily Mail shares on potential profits boom

Results were well-received, and belief in the City is that the share price has further to grow.

Headlines focusing on a sharp fall in Daily Mail (LSE:DMGT) profits today masked the more interesting story for investors that shares are up more than 40% during a “transformational” 2019.

The conglomerate, which encompasses newspapers including the Daily Mail, as well as Mail Online and a number of business-to-business (B2B) operations, is reaping the benefits of a move to streamline assets with a focus on those able to drive good returns.

Over the past three years it has moved from ten sectors to five, from 40 operating companies to eight and from net debt of £679 million and a debt/earnings ratio of 1.8 to net cash of £247 million at the end of September.

The overhaul resulted in April's distribution of £862 million to shareholders from DMGT's entire holding of Euromoney shares and a £200 million special dividend. Today's full-year pay-out was increased 3% to 23.9p a share.

Having reshaped its balance sheet and portfolio, the next stage of the DMGT transformation under CEO Paul Zwillenberg involves targeted investment, such as the recent £50 million spent buying the “i” newspaper to bolster the consumer media division.

Source: TradingView Past performance is not a guide to future performance

Against the backdrop of structural decline in print media, the consumer arm grew revenues by 2% to £672 million in today's annual results. Underlying profits growth of 18% was driven by Mail Online and the inclusion of the now wholly-owned DailyMailTV.

B2B revenues also grew 2% on an underlying basis to £738 million, with declines in property information and energy information offset by stronger performances for EdTech and Events & Exhibitions. The division's operating profits declined by 8% to £117 million.

Across the group, adjusted profit of £145 million was 19% higher on an underlying basis and 5% above consensus forecasts. Bottom-line profits were 21% lower at £145 million due to the inclusion of one-off gains in the previous year's results.

Shares rose another 3% to 825p today after the company's guidance for 2020 pointed to broadly stable revenues and an operating profit margin around 10%. This is despite a lack of visibility in the advertising market and expected continued decline in circulation volumes.

JP Morgan Cazenove retained its overweight stance and 950p price target after what it described as a “transformational” year for the group. 

The better-than-expected results and share price performance continue to repay the faith of investors following the grim headlines generated by crushing falls for the share price in the wake of 2017 and 2018 results.

This prompted the company to address criticism about the sprawling nature of its portfolio of business-to-business assets, with DMGT's Euromoney disposal followed by a £642 million windfall from the sale of a 30% stake in Zoopla owner ZPG in 2018.

Morgan Stanley, which has a price target of 900p, believes the company's balance sheet - bolstered by about £700 million of acquisition firepower following the recent sale of energy industry data unit Genscape - has the potential to enhance earnings per share by as much as 30-40%.

They added:

“The company though is adopting a measured approach to acquisitions and is emphasising investment in 2020.”

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