If the stock market is turning markedly bearish, newspapers occupy a sphere all of their own, where hope and reason have departed, and confidence long since vanished. Last week was the worst for newspaper shares that anyone can remember. The crisis began when Trinity Mirror warned that its profits would be 10 per cent lower than expected. Its shares crashed by a quarter, and then some. On Monday morning they had stood at 141.75p. By Friday morning they were 94p.
Other newspaper groups also followed suit, albeit not so catastrophically. Daily Mail and General Trust, whose "A" shares were already trading near a five-year low, plunged by more than five per cent. Johnson Press, a major regional newspaper group, fell by nearly 10 per cent. Pearson, publisher of the Financial Times, dropped to a 12-month low. In Dublin, shares of Independent News and Media, owner of this newspaper, also slid, and are trading at about 40 per cent of their 12-month high.
Newspaper shares have hardly been popular over the past year or so. Now they are not much higher in the pecking order than pre-Russian revolution railway stock.
As what is happening is adduced by some as final proof of the demise of newspapers, it might be worth trying to disinter the different causes behind the crash. First there is a general belief, which I happen not to share, that national newspapers as bundles of newsprint are doomed in the medium term. Then there is a new wave of panic as national newspaper advertising, often a lead indicator for an economic recession, begins to contract quite sharply. Finally there is something close to a collapse in classified advertising in local newspapers, partly as a result of difficulties in the property market.
Trinity Mirror finds itself at the centre of the storm, battered from every direction. Its national titles, including The Mirror, are undeniably in long-term circulation decline. (This, of course, does not mean that all newspapers are.) Like other publishers, Trinity is feeling the pinch of a national advertising contraction. And, with about half of its revenues coming from regional newspapers, it is exposed to a much more severe downturn in local classified advertising.
This is a company that was worth nearly £1.5bn a year ago and is now capitalised at around £250m. Trinity posted pre-tax profits of £190m in 2007. After last week's warning, analysts at Landsbanki forecast profits of £130.9m for this year. No doubt projections may fall further, but at its current valuation Trinity Mirror is worth only about twice its likely pre-tax profits for the current year.
Even given the company's many problems, investors have evidently gone barking mad. Perhaps there is an Asian tycoon out there with more gumption. Ananda Krishnan, a Malaysian billionaire, recently took a 20 per cent stake in Johnson Press, publisher of The Scotsman and The Yorkshire Post, which is even more exposed to the decline in regional advertising than Trinity Mirror. By the way, it is difficult to see how Sly Bailey, Trinity Mirror's preposterously well-rewarded chief executive, can remain much longer in her job, though no one would claim that the company's difficulties are all of her making.
So powerful is sentiment against newspapers that even the strongest groups are trading at absurdly low values in relation to their profits. Daily Mail and General Trust "A" shares are changing hands at £2.78 as I write, as against a 12-month high of £7.79. (I should declare an interest as a Daily Mail columnist, but I don't own any shares in the newspaper, or indeed in any publishing group.) The company recently announced increased half-yearly pre-tax profits of £166m. It flagship title, The Daily Mail, is certainly not in decline, and is probably making about £90m a year.
Admittedly, DMGT is exposed to the regional advertising slump through its ownership of Northcliffe Media, which accounts for about a fifth of the company's turnover, and made profits of £40m in the six months to 31 March. Much more than Trinity Mirror, the company has been expanding its non-newspaper interests, yet still it is being shunned by investors. Unlike other undervalued groups, it is not vulnerable to a takeover, since Lord Rothermere controls more than 60 per cent of the voting shares. I suppose, though, he might think of taking the company private.
If investors do not want to buy newspaper stock, no one can force them to. My point is only that the City seems to have lost its marbles. One can see that some groups such as Trinity Mirror have structural problems, which is to say national titles in long-term circulation decline, but even so the sudden level of panic is hardly justified. Other groups – News International, Pearson, DMGT (excepting the London Evening Standard) – are not obviously afflicted with the same difficulties, and should not be tarred with the same brush. Still others – the Telegraph Media Group, the Guardian Media Group and Express Newspapers – are happily private, and beyond the reach of highly strung investors.
All titles are admittedly menaced by cyclical conditions, namely a contraction in national advertising revenue, though most forecasts do not put this above 2 per cent this year, and the same next. Regional titles plainly face more drastic advertising problems, and many of them have been losing circulation for years.
No one could deny that there are problems ahead, but my message is that the whole picture for newspapers is not as dire as fevered minds in the City appear to believe. Not by a long chalk.
Tracking down the readers
When I travel on the train from Oxford to London, I am cheered by the number of people, some of them quite young, reading newspapers. In the first-class carriage there are a disproportionate number of copies of The Times, which is handed out free (and sometimes pilfered by second-class passengers), but there are plenty of other newspapers being read. A wide variety is observable among those of us who travel steerage.
When I arrive in London and take the Tube, there are also plenty of people with their noses stuck in newspapers. The trouble is that they all are reading the freesheet Metro, and have not paid for it. Think of the millions of pounds in lost newspaper sales. If you live in London, how often do you see someone in the Tube reading a paid-for title?
Which reminds me that last week, for the first time in my life, a man in a London street tried to flog me a copy of The Times.