Article tip1 Jan 2022 17:22
On iii
Reach: upgrade to ‘buy’
Is media stock Reach
RCH
2.73%
(previously Trinity Mirror) another example of how banking gains is more essential with hot stocks?
The share price soared over 400% after I rated it “buy” in September 2020 at 75p following interim results. Management looked to be getting strong media results from digitising national media titles and acquiring regional titles.
By mid-year, digital registrations had risen 150% to 6.7 million, and management was confident of achieving 10 million by end-2022. Interim digital revenues had risen 45% to £69 million or 23% of group total. There remains a dilutive effect to such growth from Reach’s majority print side, in steady but modest decline.
Consensus for £114 million net profit this year has since edged up to £117 million, although the expectation for a flat 2022 remains.
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Despite me saying “it is hard to see this stock de-rating by much” from early last September Reach fell from over 400p to 257p – despite a 23 November trading update raised the full-year revenue expectation. This was not quantified, although for July to November group revenue had edged up 1.2% with digital up 17.2% and traditional print activities easing 3.5% (their decline moderating however).
The next stage of the investment case will require organic revenue growth, moving on from cost-cutting and acquisitions that helped drive an earlier sense of turnaround. Yet the latest update contained nothing untoward in this regard.
Given the stock rates near 7x targeted 2021 and 2022 earnings, the risk/reward profile looks favourable despite a modest 2.7% prospective yield. I find Reach’s online media often features in Google searches or showcasing in the Microsoft Edge browser headlines.
I downgraded the stock to "hold" last December, but the de-rating from its peak in August looks more related to trend-following than fundamentals, hence I upgrade to “buy”.
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