Harry Potter was potentially a curse for publishing house Bloomsbury (BMY), as well as a welcome bit of magic. All credit to Bloomsbury for spotting his merits when other publishers had rejected the first manuscript, but there was a danger in the early days of wizardry success that the book publisher was becoming so dependent on JK Rowling’s creation that it was neglecting other authors.
Simply wizard
Mercifully, the need to seek successes elsewhere eventually prevailed. The outcome is strong results for the year to 28 February 2019 that were ahead of expectations.
Underlying pre-tax profits rose 9%, with the academic and professional division up 13% and the adult division benefiting from novels, non-fiction and cookery titles. Working capital has been improved by £2 million through reducing inventories and selling more digital books. The aim is to increase margins over the next four years.
Solid cash generation allows a 6% increase in the dividend, the 24th consecutive year of dividend growth. The yield, based on the latest dividend, is a decent 3.5% but the payout is well covered and likely to continue rising. The price-earnings ratio is 18.8, which is not challenging for a company that continues to work magic.
Perversely, the shares slipped back on the results, though they are up from 150p to around 230p now. They topped 250p a year ago and in my view will be back there before the year is out.
Another disappointing spell
For more years than I care to remember, I have lamented in this column every three months about how I hoped one day to write something positive about Marks & Spencer (MKS). I thought that moment had come when I saw pre-tax profits were up 26.6% and earnings per shares by 31.1% in the 52 weeks to 30 March despite a fall in revenue. Surely there must be a catch?
Indeed there was a catch – in fact, several catches.
For a start, underlying pre-tax profits were 9.9% lower. UK clothing and home revenue was down 3.6% over the year and while that was in part due to store closures it is disappointing, though not surprising, to read that like-for-like sales are still slipping.
M&S can actually turn any small successes into failure: encouraging signs of progress in the third quarter were offset when stores ran out of fast selling lines in the fourth.
Food sales, the driving force that has kept M&S afloat, are still showing ominous signs of slipping: off 0.6% in total and 2.3% like-for-like over the year despite a better fourth quarter.
Shareholders are hit in the pocket twice over, with a reduction in the dividend and a rights issue, though neither were entirely unexpected. The final dividend is 7.1p, taking the total down from 18.7p to 13.9p. The results statement has remarkably little to say about this cut – surely the board was not hoping we wouldn’t notice. Presumably there will be a sharp reduction in the interim payout in the current year to bring it to roughly half the final.
The one-for-five rights issue is to pay for a half share in the joint venture with distribution company Ocado (OCDO) announced three months ago. It isn’t particularly chunky as rights issues go but at 185p it was still set at a 32% discount to the existing share price and 39% to the price before M&S said a cash call would be needed. It is fully underwritten, a sensible precaution given that long-suffering shareholders may be reluctant to throw good money after bad.
The shares fell 9.4% to 246p. Four years ago they looked set to top 600p. Yet again we are assured that M&S is pursuing a transformation programme, although “the pattern of sales remains patchy”. The downward transformation in the value of the shares is likely to continue. Stay well clear.
