A trading update from newspaper publisher Trinity Mirror (TNI) sees profit guidance for the current financial year maintained ahead of half year numbers on 3 August but only thanks to a doubling of its annual cost cutting target to £20 million. The market is not impressed marking the shares down 3.9% to 153p.

The top line shortfall reflects the continuing and precipitous decline in print advertising revenues. Underlying revenues for the publishing business are expected to fall 9% with 26% growth in digital not enough to outweigh an 11% decline in print.

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On an underlying basis income from print ads is expected to fall 17%. The shares have also been dogged by the ongoing phone hacking scandal. The question we would pose is what happens when management run out of costs to take out of the business?

It does not look like we're are at that point yet. Liberum Capital, which has a buy recommendation and 275p price target, says: 'Trinity still has a number of cost levers it can pull to protect earnings so, while consensus revenue numbers are likely to come down (we think to the £570 million to £575 million level), we would not expect consensus operating profit expectations of £103 million to change significantly. Cash flows should also be well protected and the shares are valued very attractively at circa five-times full year price to earnings (PE).'

There may be 'cost levers' to pull but arguably by doing so Trinity will undermine the quality of its key brands. If a publisher is not producing quality content then it will struggle to hang on to readers and ultimately advertisers whether this content is being accessed online or through a physical product.

Issue Date: 26 Jun 2015