Tuesday 25 October 2011

Portfolio Review: Smiths News (LSE:NWS)

High-yield dividend shares form part of Level 6 of the DIY Income Investor Income Pyramid. As the fortunes of these companies change, so does their eligibility for my portfolio.  So it is worth reviewing the portfolio selection, at least annually.

So how is Smiths News doing?

Smiths News was spun off from WH Smiths newsagents and is the largest UK newspaper and magazine wholesaler. Its subsidiary, Bertrams - aquired by the Group in March 2009 - is a leading wholesaler of books, with a 40 year history of supplying books to large and small retailers in the UK and overseas.

The latest set of results were broadly positive, although not outstanding, First, the good news:
  • full year profit of £21.9m compared to £21.2m a year ago
  • pre-tax profit increased to £32.1m (from £28.1m in the previous year)
  • underlying profit before tax was £38.6m in the year to end-August, up 10%, giving (underlying) earnings per share of was 15.5p, up 6%
  • the company generated free cash flow of £22.5m
  • cost savings of £22m with an additional £10m targeted by FY 2013
  • Smiths News saw 15% growth in operating profit - Bertrams outperformed the UK books market, buoyed by strong international sales
  • completion of the acquisition of Dawson Holdings during the year

However, Group revenues from continuing operations were down 5.2% to £1.73bn (from £1.82 bn in the previous year), mainly due to the performance of Smiths News (i.e. newspapers and magazines) which contributed over 90% to group revenue. It is probable that many households facing increasing costs will be looking to reduce expenditure on newspaper and magazine subscriptions.

Looking forward, the Group said it started FY2012 trading in line with expectations, and remains on track to grow profits in the current financial year.

Most importantly, for the DIY Income Investor, the company proposed a final dividend of 5.4p, giving full year dividend of 8p, up 8% - well covered by underlying earnings. The current dividend yield is currently around 8.4% - very attractive, if it can be sustained but above the top of the range of the HYP share yield that should normally be considered (i.e. twice the FTSE 100 average yield).

In the longer term, it is clear that traditional printed media will lose out to digital formats; however, for the time being the company performance looks strong enough.

So, a pretty strong HOLD for me.

What do you think?

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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