But why the 40% fall in the share price over the past 12 months? With exposure to both the advertising and UK mortgage sectors, it is not too surprising that City sentiment towards this business to business publisher is rock bottom. Yet the sell-off looks overdone. Here’s why.
Centaur Media plc (CAU)
Centaur is one of the UK’s leading business to business publishers, owning trade magazines such as Marketing Week, The Lawyer, Mortgage Strategy and The Engineer. Although the bulk of its turnover is still generated from printed media (58%), the company has been steadily building its online presence as it moves to keep pace with the increasingly digitised nature of content. In fact, the internet now accounts for 22% of sales, with the rest derived from staging exhibitions and industry events.
The shares look cheap on most financial metrics, especially in light of last week’s upbeat interims. Centaur delivered like-for-like sales up 6% to £39.1m, led by a 16% jump in online activities. Furthermore, profits and cash flow were strong, with operating profit (EBITDA) margins ticking up to 16% (versus 15%) and leaving £1.7m of funds on the balance sheet even after spending £7.4m on a stock buyback program. Underlying earnings per share also rose 26% to 2.4p and are set to hit 9.1p for the year ending June 2008 and then rise another 10% in 2008/2009.
Lastly, the dividend was hiked 20% to 1.2p and is expected to be 3.9p for the full year – securely covered 2.3 times by earnings. The stock trades on a modest p/e ratio of less than ten and pays an appealing 4.2% dividend yield.
Overall, the outlook is not quite as dire as sceptics fear. CEO Geoff Wilmot was cautiously optimistic, commenting that the company had made a “good start to H2, and was on track to hit its full year earnings per share, EBITDA (23%) and net cash (£7m) targets”. And the directors have been tucking into the shares recently. Three non-executives, including the chairman, have bought chunky stakes over the past four months at prices between 89p to 94p each.
The main risk is a severe downturn in its major advertising markets (such as mortgages and recruitment), and how this might hit future growth and profitability. But with a stable of premiership brands, Centaur should be more resilient than most as its titles should continue to win share from second-division rivals.
Finally, the group continues to invest in new products, has a sound balance sheet and, at these levels, must be considered a tasty acquisition target in a consolidating industry.
Recommendation: BUY at 90.75p (market capitalisation £130m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments