Shares in newspaper publisher Reach (RCH) soared 25% to 219.5p in morning trade on Friday after revealing that it expects profits to beat market expectation after a surge in online revenue.
In a trading update, the Daily Mirror and Daily Express-owner said it expects underlying operating profit for 2020 to be ahead of market expectations.
Consensus estimates had been pitched at around £125 million but Reach confirmed a range of between £130 million to £135 million following a record digital revenue performance. Online revenue grew by 24.9% in the fourth quarter (Q4) to end December 2020, up from 13.4% in Q3.
Print circulation sales continue to decline, falling 11.7% in Q4, an improvement on the 12.6% decline in Q3. These trends contributed to an improved total revenue decline in the three months to end December of 10.2%, compared with the 14.8% decline in the previous quarter.
Reach said it reached the milestone of five million online customer registrations and completed the development of Reach ID, its proprietary customer insight platform which provides a combined view of a user’s activity across its sites.
ANALYST VIEWS
Numis analyst Gareth Davies called Reach’s update a ‘very encouraging statement’ and pushed the stock’s target price to 240p from 210p, pointing to its ‘very strong digital revenue momentum, with strong drop-through to profits.’
He also highlighted the five million online customer registrations and said it was a key part of the firm’s Customer Value Strategy, which enables Reach to ‘use enhanced data and insights to drive new product innovations and to grow revenue through more targeted brand opportunities and commercial partnerships.’
Analysts at N+1 Singer said Reach now generates a 17% 2021 free cash flow yield on their forecasts, well ahead of the 3-7% generated by its global peers, ‘with room to accommodate pension payments, the resumption of a cash dividend, and a steady level of reinvestment back into the business.’
