Interactive Investor

Remarkable turnaround at this small-cap stock

2nd June 2021 15:03

Graeme Evans from interactive investor

Reading more in lockdown to thank for special dividend and earnings upgrade.

A remarkable turnaround in fortunes today saw Bloomsbury Publishing (LSE:BMY) repay the faith of shareholders with an £8 million special dividend and a new earnings upgrade.

Just over a year ago, Bloomsbury raised £8.4 million by placing shares with City institutions to give it the funds to survive bookshops and academic institutions being closed due to the pandemic.

Those shares were snapped up at 223.5p but are now changing hands at 353p, a rise of almost  60% after strong online and e-book sales across the consumer and academic divisions resulted in a 14% jump in annual revenues to £185.1 million.

As chief executive Nigel Newton notes alongside today's record results: “The popularity of reading has been a ray of sunshine in an otherwise very dark year.”

The latest of its three upgrades to guidance meant Bloomsbury's underlying earnings per share grew by 25% to 16.71p for the year to the end of February, triggering a 10% hike in final dividend to 7.58p a share and worth £6.2 million.

This will be paid on 27 August, but Newton is also proposing a special dividend of 9.78p a share. He said: “The board greatly appreciates the support of our shareholders during such unprecedented circumstances last year.”

Shares rose more than 14% today, with sentiment further boosted by Bloomsbury expecting revenues and profits for the new financial to be comfortably ahead of market forecasts.

Its consumer titles planned for 2021-22 include Lost Focus by Johan Hari, Gino’s Italian Family Adventure by Gino D’Acampo and Animal by Lisa Taddeo. It is also publishing Sarah J Maas’ second Crescent City title, House of Sky and Breath, in January.

Sales of her titles grew by 129% in the last financial year and contributed to consumer revenues jumping 22% to £118.3 million.

Non-consumer revenues were 1% higher at £66.8 million, but with digital resources showing “phenomenal” growth of 49%. Today's completion of the £3.7 million acquisition of Red Globe Press should accelerate the division's digital growth as well as boost its presence in humanities and social sciences academic publishing.

The consumer arm is also being strengthened after the £8.45 million purchase of Head of Zeus, an independent publisher of genre fiction, narrative non-fiction and children’s books. It has published many bestsellers, with its authors including Dan Jones, Cixin Liu and Victoria Hislop.

Bloomsbury's shares are now at their highest level since May 2006, but analysts at Investec Securities think the current valuation does not capture the resilience, growth trajectory or scope for earnings accretive acquisitions.

They lifted their price target to 370p after praising the company's “highly impressive performance” over the past year.

Peel Hunt analysts said the case for owning Bloomsbury shares was in the diversity of its geography, formats, revenue type, subject matter and sales channels, as well as strong cash resources and value of its intellectual property.

They added: “Its performance through the pandemic was very strong, reflecting the appeal of its products and the benefits of the diversity it has achieved.

“The company has a clear strategy which it has pursued consistently over time. It remains in our view an excellent company that is well managed.”

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