“Even though the newspaper publisher trades on a forward price/earnings (PE) ratio of just 2.5 times with a prospective dividend yield of 6.8% the long-term trend in the share price remains one of a grinding decline as investors wonder whether the dividend is safe (despite what looks like excellent earnings and cash flow cover).
“It looks like a £10 million share-buyback programme is failing to provide any support. This both suggests the market does not share management’s opinion that the shares are undervalued and again raises the issue of whether buybacks really are a good way of spending shareholders’ money or creating shareholder value.
“Boss Simon Fox has even managed to meet his increased target for £20 million in cost cuts but still the shares drift, weighed down by concerns over the lack of growth, the low quality of earnings (cost-cuts not revenue increases) and the risks posed by the structural challenges that face print, the £407 million pension deficit and the proposed acquisition of Northern & Shell’s publishing assets.
“While acquiring the stable of Daily Express, Sunday Express and Daily Star offers scope for further cost reduction across the group, it could also be seen as doubling down on print at a time when Trinity’s like-for-like sales still fell 8% in the third quarter (on top of a 9% decline in the same period a year ago).
“Publishing revenue fell 9% in the third quarter as a healthy 4% increase in digital could not offset a 7% drop in print circulation sales and a further 16% plunge in advertising.
“At least the figures were no worse than expected and net debt has shrunk to just £19 million so Trinity Mirror must simply keep generating plenty of cash in its attempts to persuade the doubters, as that will keep funding the dividend and maybe, just maybe convince the sceptics that the stock is not a value trap of epic proportion.
“Earnings cover and free cash flow cover for the dividends both exceed six times – a very different situation from recent dividend disasters Carillion and Provident Financial, where earnings cover was below two times.”
| 2017E | Forecast |
| Forecast | 2016 | Historic |
|
| Dividend | Dividend | 2017E | OpFcF | Net debt/(cash) | Net debt/(cash) | Interest |
| yield (%) | cover (x) | PE (x) | cover (x) | £ million | equity (%) | cover (x) |
|
|
|
|
|
|
|
|
Trinity Mirror | 6.8% | 6.00 x | 2.5 x | 6.65 x | 429.2 | (68.4%) | 19.1 x |
Source: Company accounts, based on first-half 2017 numbers for balance sheet and cash flow figures