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At lunchtime today (20 January), Reach out (LSE:RCH) was the third best performing stock in FTSE.
Its 23% rise follows the release of a positive (but brief) trading update, which the news publisher now expects to “delivering results ahead of market expectations for a full year“.
A better article
This is welcome news for long-time shareholders who have seen the company’s share price drop by 27% since January 2020.
Even worse, the publisher’s stock market value of The Daily Mirror, The Daily Express again The Daily Star down 77%, from its September 2021 peak.
So perhaps today’s announcement is proof that reports of the death of the newspaper industry are exaggerated.
But Piers Morgan, who used to plan The Daily Mirrorhe doesn’t think so.
He just bought his ‘Not confirmed’ YouTube channel from Rupert Murdoch and says the future of news will be online. Morgan believes that print and traditional media are in decline. He recently told the Financial Times: “The line network stuff is just dead now. It will take a while to die, but it is dead … in 10 years time none of them will be there..”
A seemingly attractive ratio
However, on paper, Reach shares look cheap.
Before today’s market update, analysts were expecting 2024 earnings per share of 22.3p, meaning the stock was trading at a multiple of 3.2. After today’s update, its price-to-earnings (P/E) ratio has more than quadrupled. But this is still remarkably cheap by historical standards.
The stock also appears to offer good value using an asset-based approach. Its market is 55% lower than its book value. That said, more than two-thirds of its assets are accounted for by internal audits of its 120 newspaper titles. Without approaching potential buyers, it is difficult to know whether this is accurate or not.
Still, income investors may be tempted to consider taking a position.
From June 2022, Reach has kept its interim and final benefits unchanged. If this continues, it will pay a dividend of 7.34pa in respect of its 2024 financial year. This means an attractive forward yield of 8.1%.
Not me
However, despite these good things, I don’t want to invest.
The group’s improved financial performance came only in the last quarter of 2024. As the saying goes, one swallow does not make a summer.
I also agree with Piers Morgan about the long-term decline of newspapers, which can be seen in the results of Reach. In the six months ended 30 June 2024, printing revenue decreased by 6.1%, compared to the same period in 2023.
However, digital sales were also down (1.3%). And the latter contributed only 22% of the total revenue – the group still relies heavily on traditional media consumption.
In my opinion, unless the team did well in their last quarter, I think they are facing challenges that they will struggle to overcome. I don’t think young people place as high a value on traditional news as the newspaper-reading generations before them, which means that putting journalism behind a paywall will not be profitable.
And this probably explains why stocks seem so cheap. Instead of seeing this as a buying opportunity, I believe this is a warning sign that some investors are not seeing the ‘good news’ growth story. So, I don’t want to buy.
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