Refinancing creates opportunities for Smiths News

Swindon-based newspaper and magazines distributor Smiths News (LON: SNWS) has renegotiated its bank facilities and that has cut interest charges and enabled the premium listed company to raise the dividend.

The core newspaper and magazines business is not likely to grow, although the share of increased cover prices will help to offset the declines in circulation. Admin costs fell despite wage increases.

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Management is diversifying the business into new areas, such as recycling and distributing other goods to retailers. These will use existing space in warehouses. Smiths News will have available finance to make bolt-on acquisitions in new sectors.  

A new £40m revolving credit facility and £10m uncommitted accordion facility have been negotiated. The lower interest rate should reduce interest costs by around £1m in a full year.

In the six months to February 2024, revenues dipped 2% to £539.8m due to a boost from the football World Cup collectibles in the comparative period. Revenues would have hardly changed without that. The second half will get a boost from the Euros Championship. Underlying pre-tax profit fell from £17.1m to £15.9m.

The interim dividend was raised from 1.4p/share to 1.75p/share. Before the refinancing Smiths News was not allowed to increase the dividend. The policy is for the dividend to be two-times covered by earnings. The full year forecast is 5.3p/share.

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Canaccord Genuity maintains its full year pre-tax profit estimate at £32.9m but it has raised its 2024-25 pre-tax profit forecast from £33.7m to £34.7m – with a small uplift in profit expected in 2025-26.

The share price was 6.1% higher on the week at 56p. That is less than six times prospective earnings. The forecast yield is 9.5%.

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