Newspaper and magazines distributor Smiths News (LON:SNWS) has outlined its planned investment to enable it to service its recently announced national contract wins worth £375m annually. There could be an additional £12m-£18m of operating profit from these contracts.
There will be additional investment of £21m-£27m for the Go National strategy. This will be to build up a national network to service the contracts.
The national network requires 23 final mile sites and a further 700 subcontract drivers. Smiths News is confident it will be ready by July 2027 when the ten year contract with News UK starts. This is followed by the Telegraph contract in October 2027 and Associated Newspapers in January 2028. There are other contracts starting in 2030.
Investment and roll out of new transport and warehouse management systems will be completed early nest year. This well-timed because it will help increase efficiency and can be extended to the new sites when they open.
Net cash was £3.9m at the end of August 2026 and the additional investment means that there will be net debt next August. This should be modest because of the strong cash generation of the business.
In the year to August 2026, revenues were 3% lower at £1.04bn, while operational efficiencies enabled pre-tax profit to edge up from £35.8m to £36.2m. There was a boost for the collectibles business from the football World Cup and that will not be repeated this year. The total dividend is 5.7p/share.
Newer growth areas remain less than 1% of revenues. In the short-term, the focus will be on building the national network, so the growth prospects may be held back. However, having a wider network will be a boost to longer-term prospects.
The Deposit Return Scheme is an opportunity for the recycling business. It is tendering for the part of the scheme that collects recycling material from smaller retailers and hospitality sites. This would cover England, Scotland and Northern Ireland. An announcement is expected later this year, and the contract would start in October 2027, when the new capacity is up and running.
There are also still tenders for other national newspaper and magazine owners: Reach, Financial Times, Marketforce and Guardian. These could add £225m of additional business if they are won.
There will be a small contribution from the News UK contract this year, but the additional costs mean that pre-tax profit is expected to fall to £24.3m this year before recovering to £31.4m in 2027-28 and then increasing to £40.5m as operational efficiency improves with three of the contracts contributing for the full year. By then Smiths news should be back to a net cash position.
The intention is pay a dividend of 5.2p/share even though this would not be twice covered by earnings.