Bloomsbury Publishing (BMY)

A little bit of history repeating itself?

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.

Publishers of books, founded in 1987, they floated on the stock market in 1997 and have been listed for 27 year, each of which has seen an uninterrupted dividend growth each year, even through Covid. Bloomsbury made it’s name at the Millennium with the signing of J.K Rowling and the blockbuster Harry Potter.

The company has very reliable earnings growth having done a compound 20% p.a,. EPS growth over the past 7 years at least. The chart is the biggest long term bowl I’ve ever seen.  While trading on a PE of circa 12, placing them on a PEG of 0.6 and that’s a genuine Jim Slater style PEG of 5 year+.  In fact I’d suggest this is a very under-valued Jim Slater style Zulu stock which meets his criteria.

Jim Slater’s criteria for a Zulu Stock

MANDATORY

1. Five Year Record (5 years positive earnings growth)
2. Low PEG Factor (PE divided by growth) PEG below 1 – for example 10% eps growth on a PE of 10 or less)
3. Optimistic Chairman's Statement
4. Strong Financial Position
5. Competitive Advantage

IMPORTANT

6.Something New
7. Small Market Capitalisation (a small cap stock - anything in the FTSE250 or above is out)
8. Relative Strength (as in the share price movement compared to the FTSE All Share Index)

DESIREABLE

9. Dividend Yield
10. Reasonable Asset Position
11. Management Shareholding

Most Slater style Zulu stocks trades on PE’s of 20+ simply because of 3 things, growth well in excess of the PE ratio, earnings growth reliability and ‘something new’. Eventually they rerate thanks to the ‘something new’ driving higher growth.

This is the Stocko data

There’s always something new at Bloomsbury as they are constantly finding new authors and exciting book sales but while the company is best known for it’s huge success of the Harry Potter franchise, that has drifted from the headlines.  However the business is very misunderstood.  One of the biggest drivers of earnings is the back catalogue.  If an author has a big success the new book sells well.  But there are costs to that new book in editing, typesetting, films and plates for printing, and the general one off set up of a new book.  When back catalogue books sell, there is none of this, it has all been done for the initial print run, therefore there are far greater margins in back catalogue.  Not only that but when a new book gets read, often the reader then may buy a back catalogue boxed set which can be 8-10 books and cost 5 times what the new book in the series costs or more. Each time Bloomsbury get a big hit of a book from an author they get a rush of back catalogue sales.

Recently, Bloomsbury have had a huge hit from Romantasy (Romance and Fantasy)  author Sarah J Maas who has a 15 book back catalogue and is contracted to write a further 6 books.  Her titles are Throne of Glass, A Court of Thorns and Roses, and Crescent City. As of 2022, she had sold over 38 million copies of her books and her work has been translated into 37 languages. Two good articles below:

Is Sarah J Maas the new JK Rowling?

https://www.independent.co.uk/arts-entertainment/books/features/sarah-j-maas-series-books-jk-rowling-b2500008.html

How Sarah J. Maas Built a Sprawling Fantasy Multiverse

https://time.com/6590247/sarah-j-maas-interview-house-of-flame-and-shadow/

In March, author Cixin Liu see’s his trilogy, “The Three Body Problem”, start airing on Netflix.  This is hoped to be the next Game of Thrones and is being produced by the same producers.  While Bloomsbury get no payment for this, the stimulation for Cixin Liu’s new books and back catalogue could be massive. He is a nine-time winner of China's Galaxy Award and has also received the 2015 Hugo Award for The Three-Body Problem.

On top of this they have a very popular Harry Potter Almanac coming out ahead of the Harry Potter series being turning into a TV Series in the US by HBO with 1 book each year, going forward for each series – 7 in total. This is likely to boost sales of Harry Potter back catalogue books for Bloomsbury.  There’s many other big selling authors like cook Tom Kerridge but I won’t list them all, just search Bloomsbury authors.

Another ‘something new’ that they have that makes this a Zulu, in my opinion, is Bloombury Digital Resources. When online publishing started, the fear was that this may be the demise of physical books, but Bloombury have embraced it and have moved into Academic Publishing. Bloomsbury Digital Resources grew at 41% last year on much higher operating margins in the 45% range.

Below are the highlights of last year’s results from the company presentation:

Fittingly for a publisher of Romantasy books, Bloomsbury published a trading update on Valentine’s Day, Feb 14th:

Revenues are now forecast to be £331 million, up 25% on last year, revenues were up just 11% in H1, which tells me H2 has been a huge step change.  If I go back to 2018 or 2019, the normal revenue split, H1/H2 seems to be around 45/55.  This year is looking more like 40/60 and while H1 is up 11% on last year, H2 sales seem to have been £192 v £143 last year, up 44%.  This is a step change in sales growth but more importantly margins have also risen from 12.8% to 14.3%.  This means profit before tax will now be over £45m from £25.4m last year. This is a high quality business with £45m net cash and good investment metrics in my opinion.

Brokers are now forecasting 45.8p eps this year.  The earnings forecast for 2025 are yet to be revised.  I’d point out a couple of standouts to this.  The divi for this year is forecast to be 12.3p.  Having paid a 14p divi in the trailing 12 months and having raised the interim divi 162% from 1.41 to 3.7p, (2.29p) it’s hard to believe there won’t be a decent rise to the final divi too so I’m expecting 14p+ for the year as a divi at least, and potentially a special on top, could be on the cards as in 2021.  With this year having been so good, it’s hard to see how the earnings base going fwd doesn’t rise considerably too, so perhaps punters are looking at the unchanged forecasts for next year and thinking higher growth isn’t going to continue but as ever, broker forecasts these days seem to be way too cautious and investing on their guidance can mean missing some great opportunities imo.

With a lot of their income coming from Academic which is growing strongly, it’s hard to see why BMY trades on a PE far lower than Informa IMF (PE 18.8). Relx REL  (PE28) or Pearson.

Bloomsbury have said that the £45m cash they have will be used to do M&A. more internal investment and pay back cash to shareholders, on average BMY make one acquisitions a year.  So a company growing earnings at 20%+ per annum on a PE of 12,( ignoring this bumper upgrade to guidance), a circa 3% yield, fabulous reliable earnings growth of circa 20% per annum, nearly 300% over 5 years with net cash of £45m and meeting what I believe are all Jim Slater’s criteria for a Zulu stock. There has been roughly 10% share dilution over the past 3 years.  I’ve watched BMY for several years but the share price growth has only reflected earnings growth. From Jan 2022 to Jan 2024 the share-price grew just 30% while 35% earnings growth was achieved.  I think a buzz is likely to build around BMY now.  This is at least the third unscheduled trading upgrade over the past 18 months and the earnings growth is now smashing rather than just beating. I think these will re-rate with earnings growth averaging well over the 20% p.a. they have achieved in the past 5 years hence my reason to buy in here as the growth rate looks like stepping up a gear.  Bloomsbury now command a lot of respect after nabbing J.K.Rowling and Harry Potter and they seem to have a knack of finding great fantasy writers, a very hot genre with the possible boost from film and TV. The Academic side is growing strongly. I like buying when all the bells and whistles are about to ring.

Year end is March 31^st, results May 23^rd. There’s also a presentation by the company on the day.

For the really ‘bullish dreamer’ case – having done 32p eps in H2, then doing that in H1 and H2 next year would be 64p eps and wouldn’t be unrealistic after doing 45p eps this year.  Also in 1999 when Harry Potter took off, BMY 4 bagged in 12 months.  Now I’m not saying this will repeat, but the great thing about looking back at how these have done in the past in similar circumstances, means you can see what just a little bit of history repeating itself could do,  even if it does a fraction of the past in my opinion.

All of the above is just my opinion. I’m not an analyst, just a private investor with a very meaningful holding in BMY, explaining what I like about them.  I may therefore be biased, talking my own book or darn right lying and you won’t know unless you do your own research, so don’t take this as a recommendation at all, make your own informed decision as you press the buy button, not me.

Rebel.