Reach PLC

Reach PLC (LON: RCH) is an FTSE All-Share listed news publisher in the UK. It reaches around 48 million people a month through online and print brands.

The final dividend is scheduled for payment on 10 June 2022 to shareholders on the register on 13 May 2022.

Rationale for Valuation – Speculative Buy at GBX 118.80

• Strong Fundamentals: On an adjusted basis in FY21, revenue and earnings per share increased by 2.6% and 9.3% YoY, respectively. It also strengthened its balance sheet with the increase in available net cash from £42.0 million (FY20) to £65.7 million (FY21), demonstrating improved confidence in the outlook. Subsequently, the final dividend was 4.46 pence per share, reflecting a 4.7% year-on-year increase.
• Sustainable Growth Prospects: Reach has made significant investments in technology and product developments to support future profit growth. The latest trading update showed substantial digital growth and encouraging recovery in the print division. Also, Reach achieved 10 million registrations ahead of the FY22 target. Moreover, a strong balance sheet and a new digital tech platform (Neptune) underpin investment in sustainable long-term profit growth.
• Positive Guidance: On the back of its digital growth strategy, Reach is targeting a double digital revenue by the end of 2024.
• Undervalued Multiples: On a forward 12-month basis – EV/EBITDA, EV/Sales, Price/Book, and Price/Earnings valuation multiples are undervalued against the of the Media & Publishing industry.
• Technical Indicators: From a technical standpoint, 14-day RSI (~22.02) is close to the oversold territory, supporting the upside potential.

Key Risks

• Print Decline: The growth of Group revenue in FY21 was offset by the downfall in print and advertising revenue due to cost inflation. Moreover, the war in Ukraine has impacted the 'brand safe' content for news publishers.
• Profit Warning: Reach anticipated that FY22 operating revenue might be lower than FY21 as the Company expects to invest in long-term growth, while the revenue is expected to be flat.
• Tightening of Monetary Policy: The Federal Reserve announced an 0.5% increase in interest rates on 04 May 2022. Meanwhile, the Bank of England is expected to raise interest rates to their highest level in 13 years on 05 May 2022.

Trading Update (for the 4-month period to 24 April 2022, as of 5 May 2022)

 (Source: Company Filings)

• Resilient Performance: Reach delivered digital revenue growth, and continued strategic progress, despite a more challenging market.
• Outlook: It anticipates flat revenue for FY22, with a lower digital contribution than previously expected due to challenging market conditions.

Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: STV Group PLC, ITV PLC, and Impresa Sociedade Gestora de Participacoes Sociais SA.

*All selected peers are LSE-listed Companies from the Media sector.

 Conclusion

Based on the strategic progress, solid fundamentals, acceleration in investment programme, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Reach PLC at the closing market price of GBX 118.80 (as of 12 May 2022) with lower double-digit upside potential based on 3.94x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

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 unfavorable movement in the stock prices.

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