TNI – an overview

TNI (Trinity Mirror) has had quite an eventful run over a 1 year period. 1 year ago, the share price was at 37.25p.

On 3 May 2012, Chief Executive sly Bailey stepped down, and a search for a successor began. The share price was 32.25p

On 29 May 2012, David Grigson took up his appointment as Chairman, with Sir Ian Gibson stepping down. Share price: 26.25p

On 30 Aug 2012, Simon Fox was appointed as Chief Executive with effect from 10 Sep 2012. Simon Fox was formerly a director of HMV. On 30 Aug, the share price was 38.5p.

It is worth noting that investors would have done well if they had invested on the basis that a board reshuffle was a catalyst for change. It would not have necessarily been an easy ride, however. The appointment of David Grigson was announced on 5 Dec 2011, when the share price was 52.5p. It subsequently slid to a low of 24.25p. So you would have had to endure a haircut of more than 50% before ultimately being proved right.

Actually, what you could have done was follow a momentum strategy and waited until Sep 2012, when the share price was again at 52.5p. Sure, you wouldn’t have bought in at a historical low point, but that would have only been known in hindsight, and you would have had to endure harrowing paper losses if you had bought in on the initial director change.

OK, the share price continues climbing from there, reaching 71.75p on 22 Oct 2012. At that point, the Guardian reported:

Trinity Mirror’s share price slumped more than 10% in early trading on Tuesday, as investors took fright at the potential fall out from four civil damages claims filed against the publisher over alleged phone hacking.

This sent the shares into a tailspin, as investors worried about the potential costs of this. It also sparked fears that the paper may close. This is what happened to NotW (News of the World) in Jul 2011. It didn’t close, though. The shares bottomed out on 26 Oct at 51.25p. The shares recovered quickly, and resumed their ascent.

On 13 Mar 2013, the share price was 120.25p – close to its high point over a period of a year.

On 14 Mar 2013, two things happened.

The first thing is that TNI made a preliminary results announcement for the year. Although revenues were down 7%, profit before tax was up 7%, and EPS was up 11%. Newspapers have been steadily declining in revenue. It’s a known issue. Net debt was reduced, and cashflows had increased. With net debt of £130m, net operating cashflows of £91m, and capex of £5m, interest cover of 7.7, debt on the balance sheet isn’t really a problem for the company. The real sticking point relates to pensions and dividends. Under an agreement reached with pension scheme trustees, any dividends paid by the group during 2013 to 2014 will trigger an equal payment to the scheme.

£99m of debt repayments are due in 2013 and 2014. Contributions to fund pension deficits will increase to £33m pa from 2015. It is on this basis that the board did not recommend the payment of a dividend.

The markets weren’t enamoured with the results, and TNI opened at 117p, down from 120.25p, a drop of 2.7% from the previous night’s close.

The second thing that happened was that the hacking scandal reignited. Two current and two former senior journalists were arrested. The share price tumbled after that.

On 18 Mar 2013 the shares reached their low point of nearly 82p – representing nearly a third of a drop in the share price over the course of just 1 week. The shares closed at 86p.

At the time of writing, shares are up 5.8% to 90.47p on the previous close. Shares trade on a PE of approximately 2.9, and a price to free cashflow of 2.6 – which are normally regarded as very cheap valuations. It will be interesting to see how things progress from here.

CantEatValue tweeted an excellent point regarding the whole valuation/hacking scandal debate:

I fear pension deficits far more than that. NOTW was closed for tactical reasons by Murdock, not commercial ones

Happy investing to you all.

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About mcturra2000

Computer programmer living in Scotland.
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