Bloombsbury Publishing is best known for the immense success it has enjoyed through publishing the famous Harry Potter series. The novels absolutely transformed the image and profitability of the company through the late 90s and the start of the new millennium and have been the source of much of its growth since. While easily dismissible as a participant in what is considered a dying industry, Bloomsbury have actually shown remarkably consistent earnings power recently and this qualifies it for a closer look. Peter Lynch identified successful or growing companies within mature or declining industries as potential investments due to their tendency to be overlooked and therefore undervalued. Is this the case with Bloomsbury?
Screen Summary
- A PE ratio of 11.4x and PS of 1.1x seem modest and suggest that the firm may be undervalued relative to its earnings.
- A PCF ratio of 19.0x seems more expensive, although the acquisition driven strategy is always likely to lead to free cash flow below operating cash flow and profits.
- A PB ratio of 0.99x also appears to undervalue the company although the ratio is potentially understated due to the composition of assets as discussed below.
- An ROC of 7.49% is modest although the metric is relatively consistent in recent years and has the chance to improve as the business’ focus shifts to higher margin products.
- Operating margin, at 8.69% is good for the sector although not high in absolute terms.
- Finally, a dividend yield of 4.0% is highly appealing and seems to have grown steadily over the past 6 years.
Company Background
Bloomsbury was founded in 1986 with the goal of bringing high quality publishing to the mass market and floated not too long afterwards in 1994. Since then, the company has expanded significantly through the acquisition of predominantly niche brands in addition to some organic growth.
The company’s operations fall into four broad divisions as follows: adult; children’s and educational; academic and professional; and information. Traditionally, the business focused on the publication of excellent works of fiction and non-fiction, with the intention to build up a portfolio of high quality names and titles. This strategy was successful, with the group now publishing a range of well-established writers alongside talented newcomers.
Now, however, the group focuses ever further on academic and digital publishing, citing consistency of revenue and longer term sustainability of earnings potential as key motivations.
The Strategy
As the group expands, they aim to focus on…
