Future PLC (LON:FUTR) has been through a significant transformation over the last two years, stripping out the complexities of its operating model, leaving a clear and focused business. The group has strong brands built around content, targeted at niche demographics, typically males 18-34.
The purchase of Imagine Publishing will add scale and reach, with new verticals that can be developed. The balance sheet is repaired and the path to building margin and repeatable income set as Future grows its e-commerce, events and digital advertising revenues and reaps the benefits of scale in magazines.
Imagine brings reach and synergies
Recent corporate activity has been in magazines – at first sight counterintuitive in a print market in overall decline. However, the extra cash flow should accelerate investment in faster-growing (and higher-margin) revenue streams and the path to net cash. Along with H116’s purchases of Blaze Publishing and Noble House Media events and magazines, the proposed Imagine acquisition increases reach across niche demographics and builds group share of newsstand.
Centralization of over-heads, leaner management and potential buying synergies should result in a combined operation with strong and growing operating margins (Imagine: 19%) and attractive cash flow. The deal is significantly earnings enhancing. Our model shows FY17e EPS rising from 0.8p to a pro-forma 1.2p, despite the extra shares and without including any of the economies of scale kicking in within the forecast period.
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