Gannett (GCI) seems to have bottomed in sales. In the past few years, readers of its newspapers have declined, but now but it appears that things are beginning to stabilize. The financials are strong, and cash flows high.
There are 113.7 million shares, the market price is $8.73, and the market cap is $992.6 million. The dividend is 64 cents, and the dividend yield is 7.33%. Wow!
Second-quarter revenues increased 3.4% to $774.5 million from $748.8 million last year. And that’s with 9.1% unfavorable currency fluctuation. What is a little disconcerting is that publishing revenues declined from $748.1 million last year to $692.2 million this quarter. Earnings per share for the first half are a loss of 2 cents. Free cash flow for the first half of 2017 is $99.7 million. That’s nice with such a small market cap.
What is promising is management’s guidance of revenues of $3.15 billion to $3.22 billion for 2017. EBITDA guidance is for $360 million to $365 million for 2017. If EBITDA is indeed $360 million and sales $3.15 billion, the EBITDA yield would be 11.42%. That would be nice.
According to the 10Q, there is $127 million in cash and $317.8 million in receivables. The liability side shows $377.6 million in payables and $385 million in debt. Pretty decent balance sheet. There is a $710 million pension liability.
Last year, Gannett purchased online marketer Reach Local for $162.5 million. It also purchased several newspapers with the $39.3 million purchase of North Jersey and $260.6 million Journal Media.
According to the Annual Report, the largest asset Gannett owns is USA Today. USA Today has 3.6 million subscribers and is one of the largest newspapers in the world. Other papers owned include: The Detroit Free Press, The Record (Bergen, New Jersey), Arizona Republic (Phoenix), Milwaukee Journal, Indianapolis Star, Cincinnati Enquirer, Courier-Journal (Louisville), Des Moines Register and Democrat Chronicle (Rochester, New York). There are 165 news sources in the U.K. as well.
We all are aware that print newspapers have been getting beaten up with online news. Back in 2012, Gannett (before it was spun off) produced $3.47 billion in revenues. By 2016, sales shrank to $3.046 billion. It appears that revenues are starting to stabilize. Management is on the prowl for bolt on newsprint.
There is a core group of people in every city who need to read the daily news. This core is comprised of people in local government, local business people, parents who want to read about their children’s activities in school and readers who stay super informed. Newspapers intentionally do not put all information on the web to entice these readers to keep up their subscription. It appears that Gannett is getting close to its trough in readership.
If this is indeed true, it’s a great time to buy the stock. Free cash flow yields are high and EBITDA is high. It seems that the 7.33% dividend yield is stable. Management seems like straight shooters (unlike Pearson where management talked up the dividend only to cut it a quarter later).
Looking at the chart, you will see that the stock price has been stable for several months. This can often portend good things for upward movements in price.
We took a half position. There are risks with Gannett. One is that the dividend gets cut. Another risk is that readership tanks. Of course in a bad economy, readers cancel subscriptions and advertisers pull in their horns. In today’s overpriced market, Gannett is worth a small position.
Disclosure: We own the stock.
