Will Bloomsbury Publishing get its magic back?

Harry Potter publisher Bloomsbury Publishing (LON:BMY) surprised the market on 22 May when it issued full-year results accompanied by a somewhat cautious outlook statement.

Investors who’ve grown used to more upbeat guidance from CEO Nigel Newton threw their toys out of the pram, triggering a 20% one-day fall in the stock:

City analysts have since translated Bloomsbury’s new guidance into a much more modest 6.5% downgrade to full-year expectations.

For shareholders and would-be buyers, the question now is whether the mis-match between the cut to forecasts and the much larger share price drop spells opportunity – or if it’s a sign that a more prolonged slowdown in growth could lie ahead.

In this Stock Pitch I’ve taken an in-depth look at this interesting business and considered the factors that could affect growth over the next couple of years.

Summary

Pros:

• Impressive 30-year track record of growth

• Harry Potter publisher – remains one of the biggest sellers in fiction

• Founder-CEO with clear vision and deep expertise

Cons:

• Reliance on a small number of hit authors

• Non-consumer business seems to be struggling to generate organic growth and may be relying too heavily on acquisitions

• Recent profit downgrade mark the start of a longer period of weakness

Profile

About the stock

Bloomsbury Publishing is an independent publishing house with a range of consumer and non-consumer titles. It’s best known as the publisher of the Harry Potter series and more recently, the romantasy novels of Sarah J Maas.

The company is listed in the Media & Publishing industry group, within the Consumer Cyclicals sector.

Bloomsbury is a member of the FTSE 250 index, with a market cap of £423m and a recent share price of 521p.

The StockRanks reflect the recent earnings downgrade, with strong quality metrics but weaker scores elsewhere, giving a neutral overall profile:

About the opportunity

Bloomsbury’s growth may be suffering from a temporary slowdown – it’s too soon to be sure. But this company is still led by its founder Nigel Newton and has an impressive long-term growth record.

This is perhaps most easily represented by an unbroken 30-year track record of dividend growth since its listing in 1994. Bloomsbury’s dividend has risen at a compound average rate of 10% per year since 1995 – an impressive achievement:

Mr Newton freely admits that the company relies on a handful of bestsellers such as Harry Potter to drive much of its profit. In a webinar I attended a couple of years ago, he said Bloomsbury was “very much in the hit business”, just like film or music.

After the last book about the schoolboy wizard was published in 2007, profits slumped in 2008. However, more recent growth has been boosted by a series of hit books by US author Sarah J Maas.

Unfortunately, Ms Maas has slowed her pace of publishing from her early years as a writer, when she described herself as “basically Gollum in my little writing cave”. She hasn’t released a new book since January 2024, although more titles are apparently in the works.

Anecdotal evidence suggests Bloomsbury is promoting Maas's back catalogue quite heavily at the moment, perhaps preparing the ground for another release in the next 12 months. A new Maas hit would probably provide a boost to back catalogue sales too, potentially lighting a fire under earnings forecasts.

In the meantime, Bloomsbury’s non-consumer division, which is focused on academic publishing, is also gradually expanding to provide a less volatile earnings stream.

Newton can take credit for discovering both JK Rowling and Sarah J Maas. If he can maintain and extend this record of finding hit authors while also building the non-consumer division, he could lay the groundwork for another decade-plus run of growth.

Business & Model

What is the company’s history and what does it do?

Bloomsbury is an independent publishing house that was founded by CEO Nigel Newton in 1986:

He decided to start a new, independent, medium-sized publisher of books of editorial excellence and originality with high standards of design and production. It would publish literary authors of the highest quality and sales potential.

The company floated on the London market in 1994, raising £5.5m that was used to build the company’s paperback and children’s lists (of titles).

Today the company is divided into two divisions, consumer and non-consumer.

Consumer: this business includes both adult and children’s titles. The adult list includes both fiction and celebrity non-fiction, such as cookbooks and biographies. However, my analysis suggests that it’s the children’s division that generates most of the profit.

Bloomsbury signed JK Rowling and published the first of the Harry Potter books in 1997. This launched an incredible run of growth that saw the group’s sales rise from £14m in 1997 to £150m in 2007, when the final Potter book was published – equivalent to a compound growth rate of 27% per year.

Sales fell by a third to £100m in 2008 and hovered below this level until 2014 when momentum began to build around the work of Sarah J Maas, whose first book Bloomsbury published in 2012.

Consumer sales reached £256m last year, contributing £31.4m of adjusted pre-tax profit.

Non-consumer: alongside this volatile but spectacular growth, Bloomsbury has been steadily building its non-consumer division. This is focused on academic and specialist publishing, in particular targeting the student market.

Growth has been heavily driven by acquisitions, but Bloomsbury has built a substantial catalogue of titles and has a dedicated unit that’s focused on converting this intellectual property into digital assets to drive long-term growth. Non-consumer revenue rose to £105m last year, contributing a heavily-adjusted pre-tax profit of £11.4m.

How does the business model work?

Bloomsbury’s consumer division signs authors to publish specific titles or – in some cases – a number of titles. Authors with celebrity name recognition or a sufficient track record can be paid quite substantial advances, raising the possibility that many books are loss making. Here’s a snapshot of some of the titles due for publication in the 25/26 financial year:

Royalties are paid to authors on sales once the advance has been earned – my understanding is that this takes place twice-yearly, shortly after the year-end and interim account dates.

Last year, for example, the company paid £19m in advances and £55m in royalties. These period working capital movements may help to explain why Bloomsbury tends to end the year with a substantial cash balance – much of it is due to be paid out to authors shortly after.

In non-consumer, the company pursues a similar model but has also focused on acquiring catalogues of existing titles through acquisitions of smaller publishers. This has also helped to expand the company’s distribution reach, especially in the US academic market.

In addition to selling printed books and ebooks, Bloomsbury now offers subscription services giving access to larger databases of material covering specific themes. These are aimed at academic and professional customers, primarily across humanities topics:

Markets & Competition

What is the size and state of the company’s market?

Despite its growth, Bloomsbury remains a relatively small publisher. According to trade body the Publishers Association, total UK publishing industry revenue reached £7.1bn in 2023.

This figure included £2.4bn in consumer publishing and £3.6bn in academic publishing, including exports.

Against this backdrop, Bloomsbury’s total revenue of £361m is relatively small. Rival Penguin Random House generated €4.9bn of sales in 2024. In academic publishing, Pearson’s higher education business generated sales of £826m last year.

However, I would speculate that Bloomsbury’s market share in children’s fiction (total £412m) could be much higher than in most of its other market segments.

Unfortunately, Bloomsbury stopped splitting out its consumer sales into adult and children’s two years ago (this change of disclosure may tell a story in itself). However, in 2022/23, the group reported children’s sales of £109m, roughly two-thirds of its total consumer sales for that year.

Based on this, I don’t think it’s too far-fetched to suggest that Bloomsbury could have a double-digit percentage share of the UK children’s publishing market. I would guess that this is largely a reflection of the incredible enduring appeal of the Harry Potter series, which remain top sellers more than 25 years after publication.

How does Bloomsbury derive its competitive advantage – and are these advantages durable?

Reviewing Bloomsbury against our Economic Moat Framework suggests to me that the competitive advantages of its consumer division are very limited and depend heavily on its ability to identify and secure popular authors and titles.

In the non-consumer division, the situation is a little different. The company has the potential to gain incumbent status with academic customers and secure regular repeat revenue for access to reference works not readily available elsewhere. This could provide a deeper competitive advantage over time, although I’m not sure this is proven yet.

Intangible assets: the Bloomsbury brand is well-respected in the trade and I would guess sought-after as a publisher by authors. But book buyers are indifferent as to who publishes the books they read.

The company’s intangible assets are its authors and its back catalogue – these differentiate its offering from peers and provide unique intellectual property to drive sales. Retaining successful authors may require generous advances and royalty arrangements.

However, many books have limited lifespans and only generate high levels of sales for a limited period, meaning the pipeline must be regularly replenished. True exceptions to this – such as Harry Potter – are rare.

Switching costs: Bloomsbury’s customers fall into two categories, consumer and non-consumer.

For consumer customers, there are no switching costs. Most will not even be aware of the identity of the publisher of the books they buy. Bloomsbury has to offer the product they want at the right price or the sale will go elsewhere.

For non-consumer customers, such as academic institutions and students, the situation is more nuanced. In some of its specialist areas, I think it’s reasonable to assume that Bloomsbury has ownership of a number of standard titles for which there are limited suitable alternatives. This means that buyers of these books – and subscribers to its database services – could end up at a disadvantage if they choose to switch to alternative reference sources.

Network effects: in the non-consumer business, I can imagine that academic customers and their students gain some benefit from using the same books and databases – these may form part of standard course material or be definitive references within their subjects.

In consumer, I can’t see any network effects.

Cost advantages: I don’t think Bloomsbury has any intrinsic cost advantages over other publishers. It sources staff from the same talent pools and operates in most of the same locations. Its focus on quality publishing and high editorial standards means savings are unlikely in these areas either.

I think this view is supported by Bloomsbury’s margins. Last year’s EBITDA margin of 13.9%, very close to the 15% achieved by its much larger peer Penguin Random House. I don’t think cost advantages are a big factor in this sector.

Greater scale: as Bloomsbury has grown, it may have gained some economies of scale in areas such as printing services and IT. But I think similar comments apply to those I made regarding cost advantages – given its current size, I don’t think scale is a particularly significant factor in the investment case.

Financials & Ownership

What is the record of growth & profitability?

Bloomsbury’s growth has accelerated over the last decade, albeit inconsistently. Profits and sales peaked during the pandemic years and the period immediately after, when the resurgent popularity of reading combined with several new bestsellers from Sarah J Maas.

As Mr Newton commented in the May’s results, profit margins “returned to a normalised level” last year following “an exceptional performance in 2023/24”.

The group’s profitability has followed a similar trajectory but has remained somewhat average – not high enough to view this business as a quality compounder:

Note that the operating profit and operating margin figures used above are based on reported operating profit, which includes all adjusting items. This is the figure shown on the StockReport.

Bloomsbury’s preferred profit figures are sometimes quite heavily adjusted. Last year was particularly bad, with £9.6m of adjusting items on £33.3m of reported operating profit. All of these costs were related to acquisitions and to the amortisation on acquired assets. In my view, it’s more representative to include these in profits, especially for an acquisitive business such as Bloomsbury, but opinions may vary on this.

Balance sheet & Cashflow

Bloomsbury has a track record of maintaining a strong net cash position. But as I commented earlier, my understanding is that the year-end date provides a somewhat flattering view on cash as it takes place after peak Christmas trading but before the spring payment of royalties.

My suspicion is that net cash is closer to breakeven through the year – and this view seems to be supported by last year’s accounts. Despite a year-end net cash balance of £17m, Bloomsbury paid £1.6m in debt interest costs last year but only received £1.2m of interest on its cash.

This aside, I’m quite comfortable with the group’s balance sheet and cash flow. Borrowings look comfortable to me and the StockReport highlights that free cash flow has generally matched or exceeded reported earnings in recent years:

I estimate free cash flow of £29m in 2024/25, before acquisitions. This represents an excellent 114% cash conversion from reported net profits.

Is there evidence of historic share dilution?

Bloomsbury raised new equity a couple of times during its early years as a listed business. Since then, the company has generally been able to self-fund its own growth and has avoided issuing many new shares.

In 2020 the company opted to pay its final dividend in shares, in lieu of cash, but other than this Stockopedia data show no change to the share count over the last decade.

I don’t see dilution as a concern here, unless the company embarks on a misguidedly large acquisition.

What is the ownership of the company? Does management have stakes?

Bloomsbury is still run by founder CEO Nigel Newton, but Mr Newton’s holding is only around 2% (c.£8.5m). He does seem quite well remunerated, though, with a total package that’s hovered around £2m in recent years.

The company’s remaining ownership is dominated by a mix of institutions, notably Canaccord Genuity’s wealth management business (10%) and Premier Miton (4.9%).

Valuation

How does the relative valuation compare versus industry peers?

Bloomsbury looks slightly expensive compared to the wider listed UK Media & Publishing sector:

However, there aren’t really any good direct comparisons in the consumer publishing sector on the UK market. Many rival firms are privately held or part of larger groups (e.g. Penguin Random House).

In terms of academic and professional publishing, Bloomsbury’s nearest rivals in the UK are probably Pearson (LON:PSON) and Relx (LON:REL). Bloomsbury trades on a similar historic rating to Pearson. While both firms are significantly cheaper than Relx, they also lack the latter firm’s much higher quality credentials.

Given the near-term outlook for a further fall in earnings this year, I don’t think Bloomsbury looks obviously cheap at this level.

However, taking a longer view (and remembering the group’s 30-year growth record) suggests a more positive picture.

What is the stock’s intrinsic valuation?

The average of current broker price targets for Bloomsbury is 766p:

These price targets are calculated using a variety of methods. I’ve also calculated estimates myself using a simplified discounted cash flow model and a dividend discount model.

Using some fairly standard assumptions, my valuation estimates give me an average target price of 693p – not a huge distance away from the average broker price target.

Trends & Catalysts

What underlying trends are affecting the business?

I can see two clear adverse trends affecting the consumer side of Bloomsbury’s business at the moment:

• Demand normalisation: during the pandemic, sales of printed books rose strongly as locked-down readers looked for new ways to spend time. Demand has now normalised, albeit there’s still a healthy appetite for printed books;

• No new hits: sales of new Sarah J Maas books helped drive above-trend sales growth in 2023 and 2024. But Ms Maas hasn’t published a new book since January 2024 and I would suggest that this accounts for some of the weakness in profits seen last year.

In the non-consumer business, growth is being driven by acquisitions in addition to organic efforts. However, there are also some adverse trends to consider here. These were highlighted in the recent results:

Academic & Professional organic revenue declined 10% following current UK and US budgetary pressures and the accelerated shift from print to digital, against a positive outlook of student numbers being projected to grow worldwide

Are there any catalysts that could drive a re-rating in the medium term?

In the consumer business, the obvious near-term catalyst would be the publication of a new book by Sarah J Maas.

However, on a medium-term view I’d argue that a more durable catalyst for growth would be for Bloomsbury to add some new hit authors to its list – or better still, to demonstrate improved profitability from a broader range of titles and markets.

The company’s reporting seems designed to obscure this, but my strong impression is that the bulk of consumer profits are driven by a very small number of authors.

In non-consumer, I think the company needs to demonstrate stronger organic growth to show it’s not just relying on acquisitions in a shrinking market (see Risks, below). Evidence of growing market share or rising volumes and subscriber numbers could help justify a re-rating.

Risks

Consumer: the last Harry Potter book was published in 2007. Bloomsbury’s revenue fell by 30% in 2008 and took 10 years (until 2018!) to reach a new high watermark. While Sarah J Maas is showing no signs of retiring, the slowdown in her output means there’s a risk the group’s growth rate could slow dramatically if no new hit authors are found.

While Bloomsbury has a fairly good record in this area and does invest in finding new talent, there are no guarantees this will happen in the near future.

As mentioned already, my analysis suggests that Rowling and Maas generate a very material part of Bloomsbury’s consumer division profit. How much is a closely-guarded secret – but it’s no secret that most books are loss-making or merely breakeven after costs.

Non-consumer: Bloomsbury has been an active acquirer, stating that its strategy is to expand this business to build a more stable source of profits. The aim is that this should dilute the volatility of earnings from the consumer division.

Last year’s purchase of Rowman & Littlefield was the company’s biggest deal ever, but only one of many over the last 20 years:

This strategy seems sensible enough but I am concerned about the lack of organic growth following these purchases.

The company’s reporting is inconsistent in this regard and doesn’t always make it easy to identify organic versus acquisitive revenue growth. But results in recent years haven’t been encouraging, in my view:

2022/23: non-consumer revenue rose by 19% to £97.4m, but prior year acquisitions contributed £21.5m. Without these, I believe non-consumer revenue might have fallen.

2023/24: in the absence of a major contribution from acquisitions, non-consumer revenue fell by 4% to £93.4m.

2024/25: non-consumer revenue rose by 12% to £105m. However, this growth appears to have been driven entirely by a £19.8m contribution from US publisher Rowman & Littlefield, which Bloomsbury acquired in May 2024. 

Stripping out this acquisition, I think Bloomsbury’s non-consumer revenue would have fallen from £93.5m to £85.2m last year.

In my view, the key risk here is that Bloomsbury is consolidating a shrinking market and may be unable to generate satisfactory long-term growth and profitability from its non-consumer business – in particular, its academic publishing.

Recent trading & news

22 May 25 (Preliminary Results for y/e 28 Feb 25): Megan covered Bloomsbury’s recent results and reached the following conclusion:

Investors have had a very negative reaction to this morning’s annual results which are plagued with adjustments and a wobbly outlook statement. I like the company a lot, but I am nervous enough to downgrade our previous view.

You can read her full report here.

My impression was also that the company’s recent run of momentum may be coming to an end – or at least pausing.

Sentiment & Outlook

What do brokers currently think and are they upgrading estimates?

Bloomsbury did not explicitly downgrade guidance for the year ahead in its outlook statement, but the company’s use of the words “broadly in line” was a possible clue that a modest downgrade was likely.

Analysts covering the stock have certainly taken that view, cutting forecasts for both FY26 and FY27:

What would the person selling to us be thinking and who are they?

A seller might be thinking that Bloomsbury’s long run of growth has left the stock fully priced, but with a weak outlook. Adjusted earnings per share fell last year and are expected to fall again this year, before starting to recover in FY27:

• FY24 adj EPS: 46.62p

• FY25 adj EPS: 41.45p

• FY26E EPS: 38.3p

• FY27E EPS: 40.9p

While the business may have strong long-term prospects, this doesn’t necessarily mean Bloomsbury won’t experience a period of share price weakness before growth picks up again. The shares could de-rate further before recovering.

For investors sitting on big gains, now might be an appropriate time to take some profits.

Conclusions

Bloomsbury has an impressive long-term track record of growth. It’s a successful homegrown business in a competitive market. Perhaps through a combination of luck and skill, CEO Nigel Newton has secured one of the greatest publishing sensations of all time (JK Rowling) and at least one further big seller with strong commercial qualities (Sarah J Maas).

Alongside this, the company has a respectable list of high quality (but much less profitable) literary offerings and non-fiction consumer offerings such as celebrity cookbooks, which I’d argue have a more mixed profitability profile.

The group’s non-consumer business owns some attractive assets in its areas of speciality. But this business has relied more heavily on acquisitions to build long-term growth and my feeling is that the company has not yet demonstrated that its digital division (BDR) can replace profits that may be lost forever as buyers switch from printed books to digital services.

This does not mean that BDR won’t deliver – this could become a higher margin, recurring revenue asset of considerable value in the future. However, I’m concerned that the different profitability profile of digital services may make it hard to know whether the company’s spending on acquisition is delivering satisfactory returns.

Underlying all of this is the reality that Bloomsbury’s profitability as a group is relatively average. For this reason, I am not convinced the shares deserve a premium rating and would argue that the current neutral StockRank might be appropriate, at least on a near-term view.

On a long-term view, further growth looks more probable to me. But as a potential investor, I might hope for a more compelling entry point than the current share price provides.