Thursday, November 8, 2012

Thu 8 Nov - TNI, DPP

Good morning. Busy day today, with trading statements from several companies I follow. Firstly, Trinity Mirror (TNI) report on the 17 weeks of H2, to 28 Oct 2012.

The most important line is this one;

"...adjusted operating profit performance for the current year to be broadly in line with 2011 (£104.5 million)."

I also like this comment on cashflow & net debt reduction;

"The Group's robust operating profits and strong cash flows during the period enabled a further £19 million reduction in net debt, giving a total reduction of £59 million for the year to date, to £162 million."

The trends on advertising & circulation revenues are said to be improving, but the headline figures don't look good - group revenues show that advertising is down 12% and circulation down 16% in the 17 weeks. Although prior year comparatives are tough, because it covers the period when NotW had been closed, but before the Sun on Sunday had been opened, I think.

Adjusting for this factor shows circulation revenues down a more sensible 4% at the Nationals division.

The only mention of phone hacking is to say this (which seems odd - why did the lawyer concerned publicise the issue of legal action, if he hasn't actually filed the claims?

"Following the extensive publicity given to recent claims of alleged wrong doing by Trinity Mirror journalists, the Board can confirm that no such claims have yet been served, nor have any particulars of such claims been provided. As a result, we are today issuing notices requiring claim forms to be served."

Overall then, TNI's valuation still looks very cheap on fundamentals, with them being on track to have repaid net debt pretty much in full by some point in 2014.

The big unknown of course is the phone hacking issue, and what it will cost them. Information in the public domain suggests that TNI were heavily involved in phone hacking, and the Police are investigating, with prosecutions expected in 2013.

So it remains to be seen whether the dam will break, and what information comes out. But the reality is, that TNI has a lot of potential liabilities for phone hacking compensation which have not been provided for on the balance sheet. Until we know what the likely cost is, the shares are difficult to value.

I do not currently hold TNI shares, and am awaiting clarity on the phone hacking issue before considering whether to reinvest.

Excluding an acquisition, digital revenues are going nowhere, so they clearly need to come up with a better digital strategy.

The pension deficit has reared its ugly head again, with the fall in long term interest rates meaning that it has risen by £73m at the half year to £283m just 3 months later, at 30 Sep. Not helpful, but typical of final salary schemes, as QE is playing havoc with pensions by pulling down Bond yields (hence inflating pension liabilities' present value liability calculations).

Overall I'd say this IMS is mildly negative for TNI, although its valuation on a PER basis is so low, that arguably it already accounts for the negatives such as declining turnover, net debt, and pension deficit.

I see that DP Poland (DPP) has refinanced, with a discounted Placing at 15p. This is the Dominos Pizza operation in Poland, which has yet to prove that it has a viable business model. But this £10.5m fund-raising gives it a pretty credible pot of cash to keep trying.

Might do a 2nd report later if not too busy.

Regards, Paul.


  1. Hi Paul,

    Just saw the trading statement from IND out today - clearly disappointing in relation to what you had hoped for. Given the fierce competition in this space and the likelihood that the fat margin you so love with this company is clearly going to come down considerably, I think the stock is fairly priced and your 10-20 pound price target is somewhat of a pipedream. The company themselves say that the future beyond this year is uncertain so a per of 20-30 as you suggest is unreasonable. I like many other of your value picks but think you've been holding on to this trade for so long already that you've lost some objectivity. I wish your hopes for this company materialize (especially as I followed you in!) but at the moment they are just hopes imo. Good luck.


    1. Hi Simon,

      Ah, hindsight is great isn't it! ;-)
      I think my stance was perfectly reasonable given the facts available - IND giving almost all the cash to shareholders is clearly a sign of confidence. Plus they talked of 20% market growth in the last results statement.

      Have posted a new article about IND a moment ago.

      Regards, Paul.