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Bloomsbury Publishing: THE INVESTMENT CASE
INVESTMENT OVERVIEW

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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.

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 that 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, 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

In October, the company said in its interim results statement it was trading in line with expectations.

Adjusted profit before tax in the six months to the end of August rose 13% to £2.9mln from £2.5mln the year before on revenues that grew 4% to £75.3mln from £72.1mln in 2017.

The consumer division’s revenues rose 22%, driven by a strong performance by the Adult Trade division. In Children’s Trade, sales of the Harry Potter series rose by 5% year-on-year, which is not bad seeing as last year marked the 20th anniversary of the series, which reignited interest.

In the non-consumer division, the Academic & Professional division saw revenue growth of 9%. Bloomsbury's Digital Resources 2020 initiative, which is focused on the business-to-business (B2B) Academic & Professional market, saw digital resource revenues rise 13% on a like-for-like basis, excluding the impact of changing over to the IFRS15 accounting standard.

The group ended the reporting period with cash of £16.9mln, unchanged from a year earlier, reflecting the earlier payment this year of the final dividend in respect of fiscal 2017/18 (last year, the interim dividend was paid in the second half of the financial year).

The board has declared an interim dividend of 1.21p this time around, a 5% increase on last year’s 1.15p interim divi.

Results will be weighted to the second half, as usual

“Bloomsbury is showing signs that it's building solid sales momentum in the lead up to the crucial Christmas trading period. The company's past success has largely been driven by the popularity of consumer titles, such as the Harry Potter books but the non-consumer division has notched a pleasing performance in the first half, even with the academic year yet to get into full swing,” said Fiona Cincotta, a senior market analyst at spread-betting firm, City Index.

“The Harry Potter franchise, meanwhile, doesn't appear to be getting old and tired yet, with fresh instalments like 'The Tales of Beedle the Bard' keeping sales firing. Still to come is celebrity chef Tom Kerridge's new book, which is being backed by a new BBC series and will land just in time for Christmas,” she noted.

Based on consensus forecasts, Bloomsbury’s shares – 193p at the time of writing – trade on an earnings multiple of 14.1 and yield 3.8%.

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