Reach PLC        

Reach PLC (LON: RCH) is an FTSE 250 listed company. The company generates and distributes content through newspapers, publications, and digital channels in the United Kingdom, the Republic of Ireland, Continental Europe, and abroad.

The company will publish the preliminary results for 12 months to 26 December 2021, on 01 March 2022.

Investment Rationale – Speculative Buy at GBX 243.50

• Strong growth: The company had continued to grow its overall revenue by 1.2% for the period from 28 June 2021 to 21 November 2021, driven by yield expansion, strategic delivery, and recovery in digital advertising.
• Strategy on Track: As the company comes closer to its goal of 10 million registered users, it will focus on the next phase of the customer value strategy, which will focus on increasing ARPU (“Average Rate per User”) by raising retention, engagement frequency, and dwell time.
• Doubling its Credit facilities: The company expanded its revolving credit capacity with a large syndicate of partner banks. In Addition, the increase in available facilities from £ 65 million to £120 million over a minimum of four years shows confidence and provides additional flexibility for investing in strategies.
• Technical Indicator: The stock price is hovering between the lower Bollinger and the middle Bollinger bands. The 14 days RSI of ~38.87 reflects an oversold zone.

Key Risks

• Operational Risks: RCH might get exposed to operational hazards, causing significant company disruption, lack of capital, and insufficient digital revenue growth.
• Other Risks: The company’s other risks include cyber security breaches, data protection, and supply chain failure.

Trading Update (For the period from 28 June 2021 to 21 November 2021, released on 23 November 2021)

• Sector Wise Revenue: The company’s digital revenue for the above period was up year-on-year by 17.2%, and print revenue fell to 3.5%.
• Increase in Customer Registrations: The company had customer registrations over 8 million for the above period which is up from 6.7 million at the end of July 2021, supported by the recent addition of Google 'one tap' functionality.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY22E) (Illustrative)

Conclusion

The company is on track to meet its medium-term goal of tripling digital revenue. As the company constructs a modern and inclusive media business, this, together with its economical operating strategy, should allow it to spend even more on digital content. The stock made a 52-week High and Low of GBX 430.00 and GBX 191.40, respectively.

Based on the recent strategy track of the company, revenue growth, and support from the Valuation conducted above, we have given a "Speculative Buy" recommendation on Reach PLC at the current market price of GBX 243.50 (as of 07 February 2022 at 09:32 AM GMT), with lower double-digit upside potential based on 1.50x EV/Sales multiple (approx.) on FY22E Sales (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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