National World: Read All About It!

26th Apr '23 by Mark Simpson

11 comments 4100 reads

A couple of weeks ago, I looked at one of the companies that appeared on my Free Cash Flow screen, newspaper distributor, Smiths News (LON:SNWS) . I stay with the News theme this week and look at another cash cow: National World (LON:NWOR) .

Summary

National World is a company formed to consolidate companies in the media sector.
Their first significant acquisition was JPI Media, publisher of many iconic local news titles. This has gone well, and the company is generating significant cash.
The company has outperformed listed peers so far in 2023 yet appears to be on a much lower valuation rating.
The Price to Free Cash Flow is just 5.9x, and with £26m net cash, it would be even lower on an enterprise basis.
However, the company is not immune to conditions in the wider advertising market, and revenue is forecast to decline this year and next.
The company has significant cash resources and the ambition to reverse this trend through organic and inorganic growth.
Although he doesn't have a controlling shareholding in the company, National World is very much the vehicle of its Executive Chairman, David Montgomery. Other larger shareholders have backed Montgomery in previous successful media ventures. As a result, shareholders are hitching their ride to this entrepreneur, and external shareholders are likely to have little influence over the company's direction.

Profile

National World is a Main-Market listed news publisher, including an online national newspaper, nationalworld.com. The company was listed in September 2019 as a vehicle for executive Chairman David Montgomery to:

…create a modern platform for news publishing through the implementation of a new operating model across multiple brands and platforms by acquiring a number of media and digital technology assets and leveraging its portfolio to launch new media brands across the UK.

Montgomery has a lot of experience with this type of strategy. In 2012, he led a consolidation of local newspaper titles to form the company Local World, which was sold to Trinity Mirror for £220m in 2015.

National World raised £4.6m on admission but clearly had plans for a significant transaction as their shares were suspended a few months later while they negotiated the acquisition of JPI Media. JPI was formerly known as Johnston Press and was the publisher of seven well-known…

Unlock with Email

Unlock with Google

Already have an account?
Login here

yiannos1

26th Apr '23

This is definitely not a cash cow company.

Why are you getting excited for a 2-3% dividend yield , no special dividends and definitely no buybacks?

planetx

It is actually the biggest cash cow ever if your name is David Montgomery

Spender71

AFTER the iEnergizer (LON:IBPO) de-listing (also a share with a low institutional holding) I remain cautious of illiquid stocks.

Mark Simpson

27th Apr '23

Hi yiannos1,

Overall, a single year's dividend payout is a poor proxy for underlying cash generation. In my opinion, a P/FCF of 5.9 and almost half the market cap in cash make this a cash cow. The debate, and I hope I have captured this in the article, is whether they will use that cash wisely, and for the benefit of all shareholders. A lower dividend may indicate a propensity to waste that cash. However, if a company can generate higher incremental ROCE than your average investment return, you are better off with them retaining the capital than paying you a dividend.

Jim Wall

hi mark - always great to read your material. couple of questions - this cash pile - what is it doing with it? surely with rates where they are a 25mm (average of year end numbers) cash pile generates cash? a lot of the cashflow generation is WC movements - any sense thats durable?

A cash cow company is one that uses the cash it generates for the benefit of its shareholders (at least 7% dividend yield and/or special dividend and/or buybacks).

Perhaps a value play but certainly not a cash cow, especially involved in a rather declining sector.

PS. And the announcement supposedly buying a 270m market cap company was daft ( unless they thought Reach plc was going to come after them! ).

I'm afraid that definition doesn't cut it for me. By that definition, if the share price fell significantly they would become a cash cow!

I agree on the Reach (LON:RCH) takeover. Although they claim they had financing in place, and I believe them (remember the board and large shareholders are all very experienced media execs), I reckon it was more about trying to get Reach shareholders to push the board to acquire National World (LON:NWOR) , kick out the underperforming Reach management and appoint Montgomery et al. instead. I suspect the Reach management saw the writing on the wall and refused to engage.

As a National World (LON:NWOR) shareholder, I am pleased they didn't do the deal. I really don't want to be exposed to the cash black holes that are Reach's pension deficit and phone-hacking claims.

Hi Jim,

They are almost certainly looking to make earnings-enhancing acquisitions with it. Ones where they can centralise admin functions to take out cost, and drive higher digital adverting sales. Whether they can acquire anything at a price that makes sense is the challenge. They seem pretty cheap, even if you assume they partially waste the cash, tho.

Likewise, for the cash flows from working capital. If you ignore these, they still look reasonable value, especially considering 2022 & 2023 will be weak macro conditions for advertising. They run with negative working capital, so if they can grow they can probably generate further cash flow from working capital but this is unlikely to be as big as 2022. And of course -ve WC has risks associated with it too.

At least we agree that they tried unsuccessfully to plot their own takeover, but got to thank them as I did hold Reach at the time.

Much better growth and/or value opportunities elsewhere.

Good luck with National World though; there is a bit of value at the current price but not for me.

Keep up the good and very useful work you are doing here.

Thanks

30th Apr '23

Thanks Mark

Michael C

4th May '23

Forgive my ignorance but I didn't know that a shareholding above 20% gives an entitlement to insist on the appointment of a director. Is that in this particular company's Articles, or one of the standard sets of Articles, or the Companies Acts?

Thanks,

Michael

National World: Read all about it!

Summary

Profile

Unlock the rest of this article with a 14 day trial

About the Author

Mark Simpson

11 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...