Newspaper publisher Trinity Mirror (TNI) slips 0.7% to 165p following yesterday’s excitement when a better-than-expected third-quarter trading update prompted a 20% share price rally. The price rebound reflected growing market confidence that the publisher may soon be able to reinitiate dividends.
After taking control in September 2012, chief executive officer Simon Fox has focused on cost reductions – principally achieved by centralising editorial, production and advertising sales efforts – which means cash is now flowing freely.
Net debt stands at £102 million (27 Oct) versus £120.3 million at the end of June. Newspaper circulations are only going one way and that’s down but the £428 million market cap’s suite of national and large metropolitan dailies will continue to throw off plenty of cash for many years to come. By stabilising the cost base and capital position Fox has set the scene to return this cash to investors.
While concerns remain about the long-term prospects for the business, it is possible to argue it is cheap on any number of valuation metrics. Whether you look at the business on a price/earnings basis – currently trading on five times 2014 consensus forecast earnings – or by using an enterprise value to earnings before interest, tax, depreciation and amortisation ratio (approaching seven times), value hunters might argue there remains more to play for (see Shares Plays of the Week 24 Oct) despite yesterday’s rally.