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Bloomsbury Publishing: THE INVESTMENT CASE

Bloomsbury Publishing still pulling rabbits out of the hat

Rowling, Rowling, Rowling ... keep those titles rolling. Mind you, it's not all about Ms Rowling; Sarah J Maas title revenues grew 47% in the first half of the financial year and dieters are gorging on Tom Kerridge's books
Throne of Glass
INVESTMENT OVERVIEW: BMY The Big Picture
Fantasy books have Maas appeal

Try as one might, it is difficult to write the story of Bloomsbury Publishing PLC (LON:BMY) without mentioning Harry Potter.

So, let’s start by pottering around before moving on to what Bloomsbury has been doing with the cash flow provided by the phenomenal success of the boy wizard.

A howling Rowling success

2017 marked the 20th anniversary of the publication of the very first Harry Potter book, Harry Potter and the Philosopher’s Stone – or, as they called it in the USA, Harry Potter and what the hell is a philosopher?

It also marked a quarter-of-a-century since London-listed publisher took a chance on an author who had been rejected by several other publishers.

So, don’t let anyone tell you that in the nineties, the only good thing to come out of Britain was the Channel Tunnel ...

JK Rowling, or Joanne as she was known back then, finished the manuscript for what would become the first Potter book back in 1995 but struggled to find anyone willing to take it on.

After being rejected by several different publishers, Bloomsbury was the one that eventually decided to take a punt on a story that combined post-Tolkien Rowling fantasy with the sort of boarding school yarns peddled by Frank Richards, of Billy Bunter fame.

It proved to be a master stroke and a company-maker.

The decision transformed Bloomsbury from a small, independent company into one of the most successful children’s publishers.

Back then Bloomsbury wasn’t quite so sure it was on to a winner and the first hardback print run – which came out on 26 June 1997 – was for just 500 copies.

They're worth a pretty penny now.

Success extended far beyond the Harry Potter books

That first book and the subsequent six instalments went on to sell the best part of half a billion (yes, 500,000,000) copies around the world and were printed in 79 different languages.

It didn’t end there though. All of the books were made into films which grossed more than £6bn worldwide, a theme park followed not long after as did several spin-offs.

Even in his wildest dreams, Bloomsbury founder and chief executive Nigel Newton couldn’t have imagined Harry Potter enjoying the kind of enduring success that it has.

Nor would he have thought 20 years ago that that decision would change Bloomsbury and the wider children’s books landscape forever.

With Harry Potter acting as the proverbial golden goose, Bloomsbury boss Nigel Newton has ploughed the money back into the business and sought to diversify the revenue stream.

This has mainly taken the form of a decisive move into higher-margin professional and academic publishing, where the focus is business-to-business digital publishing and goes under the name of Bloomsbury 2020.

So far, there are few signs of growth pains

Last month, the publisher said it expects revenues to be ‘slightly ahead’ of expectations and profits to be ‘well ahead’ of expectations for the year ended 28 February 2018.

Results were driven by excellent sales, particularly in January and February, with lower than anticipated returns, with the publisher highlighting the success of titles such as Tom Kerridge’s Lose Weight For Good.

The group said that, according to Nielsen BookScan records, in one week, the Tom Kerridge title sold more than 70.000 copies, which is more than any book has ever sold in the UK in a week in January – including the Harry Potter titles.

Bloomsbury did not break down its full-year numbers by division – that will come when the full-year figures are released on May 22 – but it had previously reported that in the first half of the financial year, the consumer division’s revenues rose 20% from the year before to £44.7mln while the non-consumer division’s sales rose 8% year-on-year to £27.4mln.

In the former, Sarah J Maas is giving Ms Rowling a run for her money for the accolade of Queen of Fantasy while in the latter division, Academic & Professional digital resources revenues grew 10% to £2.2 million (2016: £2 million) including 17% growth in Bloomsbury Professional Online.

Bloomsbury said its net cash balance is now expected to be around £25mln, ‘significantly ahead of expectations.”

Numis reiterates ‘buy’ recommendation and increases its target price

Numis Securities called the trading update “positive” and raised their target price for Bloomsbury shares to 248p from 238p and reiterated a ‘buy’ rating on the stock, which they said is “one of our key picks in SmallCap Media.”

The broker also raised its full-year 2018 pre-tax profit/earnings per share forecasts by +8% to £13.0mln/13.9p respectively, up from £12.0mln/12.8p previously.

The Numis analysts said: “We believe the group has strong momentum across both its Consumer and Academic & Professional businesses and see scope for upgrades to our FY19 PBT/EPS of £13.0m/13.0p as we progress through the year, though we maintain them at this early stage.”

The analysts concluded: “We are encouraged by the good progress made by the group in FY18, the peak year of Bloomsbury 2020 investment.”

Shares in Bloomsbury are currently trading at around 178p.

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