Investment Column: Smiths News faces structural challenges

NetPlay TV; Zoo Digital


Our view: Sell

Share price: 88.75p (+2.25p)

Smiths News is a company steeped in history, as it never fails to point out. It traces its "distinguished heritage" back 200 years to Henry William Smith and his paper round. Yet it operates in an industry facing as significant a structural change as at any time since Mr Smith trudged round bringing news to the neighbourhood.

Smiths News split off from the famous WH Smith Group in 2006 to focus on the business of wholesaling newspapers and magazines around the UK. Yet shortly after the demerger, the company faced the prospect of increased pressure on the media industry during the downturn.

Yesterday, it announced results for the six months to 28 February and revealed that a cost-cutting programme had seen the group lift profits, yet this came on declining revenues, with management blaming the fall in newspaper and magazine sales. Revenues from the latter are down almost 10 per cent.

Pre-tax profits rose 22 per cent from a year earlier to £18.7m, while revenues fell 5 per cent to £872.3m. The cost-cutting strategy introduced by management took out £11m from the first six months, with a further £9m to come by the end of the year.

But there is only so much cost cutting management can do before it hits the bone. Chief executive Mark Cashmore said yesterday that it had identified "clear acquisition targets in our preferred sectors" in a bid to reverse falling sales. Yet the diversification strategy remains shrouded in uncertainty and seeking deals is a route studded with pitfalls if it is not properly executed.

The group's debt is perfectly manageable and investors should have been pleased after the dividend was lifted. But again, the headwinds remain, with analysts pointing to the decline in print media, changing consumer habits and the rise of digital media. Profits also sank 12.4 per cent at its book wholesaler Bertrams. Management have performed ably so far, but we are not convinced that the shares will increase in the near term.

NetPlay TV

Our view: Hold

Share price: 8.88p (+0.13p)

Despite its name, NetPlay TV is not limited to offering gambling games solely to those high rollers playing in front of their living room telly. With brands including SuperCasino and Challenge Jackpot, it also offers punters the opportunity to place bets on games including roulette and bingo on their mobile and over the internet.

And NetPlay is having success in converting the players who come on board through the television to playing on other platforms. Yesterday, it published a first-quarter update which showed another strong performance, and which was met with some enthusiasm among analysts.

In particular, it said the mobile business was improving. A fifth of SuperCasino players joined via its iPhone application in the past three months. Management is also confident that the opening of the Italian online casino market will see the group expand beyond the UK. The update marked the latest step in the company's rehabilitation. It left us hopeful, but we would still wait to see further signs of progress before buying in.

Zoo Digital

Our view: Hold

Share price: 44p (-7p)

Zoo Digital licenses out software to adapt media to different formats and languages, specialising in things such as the authoring of DVD discs and the translation of DVD menus and websites. Yesterday's trading update suggested that demand for its services was holding up well, with profitability for the year to March expected to be in line with market hopes.

The company also revealed that its year-end cash balance stood at $600,000, which, taken in together with its bank overdraft facilities, leaves Zoo in good financial health. The slight negative was news that organisational changes at a major customer had triggered a short-term slowdown of orders, and had thus had an adverse impact on revenues. However, on the upside, Zoo added that "demand from the division most affected" by these changes was now increasing and it expected "further revenue recovery going forward".

Overall, then, the update was reassuring, and argues firmly against a "sell" stance. But, with the shares trading on an enterprise multiple of nearly 11 times FinnCap's estimates for 2011, we would wait until the preliminary results later this year before wading in.

Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
News
people
PROMOTED VIDEO
News
A polar bear’s diet is rich in seal blubber and half of its own body weight is composed of fat
i100
News
London is the most expensive city in Europe for cultural activities such as ballet
arts
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Jeremy Clarkson has rejected criticisms of his language, according to BBC director of television Danny Cohen
tv
Extras
indybest
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Arts and Entertainment
tv
Sport
Is this how Mario Balotelli will cruise into Liverpool?
football
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Application Support - Enterprise Java, SQL, Oracle, SQL Server

£45000 - £55000 per annum: Harrington Starr: A well-established financial soft...

Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

Junior Quant Analyst - C++, Boost, Data Mining

£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape