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magazine group Future (LSE:FUTR) reported results on Thursday (December 7) and the response was emphatically negative. Shares fell more than 30%, before recovering somewhat as investors reacted to the disappointing results. So, with such a dramatic collapse in the share price, is this now a great opportunity? Or is there more pain ahead?
How bad was it?
I own futures stocks and know that volatility is not a new feature after its gains. In the last year, the share price has fallen more than 50%. This has raised questions about the future of the magazines and whether the company has a sustainable strategy.
The results were not very good. Pre-tax profits fell 19% year-on-year to £138.1m in the year to September 30. Revenue fell 10% to £788.9m, mainly due to a further decline in US sales and advertising revenue.
Obviously these numbers are disappointing, but I think such a collapse in share price would have led to a much bigger failure. Such a drop can often be attributed to a change in forward-looking guidance, but the company expressed confidence in returning to revenue growth in the second half of 2024, forecasting low single-digit growth for the full year.
Will the company be able to turn the situation around?
The media space is obviously in a major period of transition, as ai and the post-pandemic mindset see the way we entertain and inform ourselves evolve. However, the company appears to be taking a proactive approach.
Future has announced an investment program of between £25m and £30m over two years, aiming to achieve an adjusted operating margin of 28%-30%. It also plans to hire 200 new employees, 150 of them in editorial roles, focusing on reviews and video content. I like the sound of this. There will clearly be bumps in the road, but with the company aiming to leverage its specialties and invest heavily in the right areas, the future could well be bright.
What about the valuation?
With the share price now close to £6, a discounted cash flow calculation suggests there is a tremendous opportunity for patient investors, with fair value calculated at £30.51. Of course, it's not like the stock can ever reach that level.
But with a price-to-earnings (P/E) ratio of 6.5 times, the company is notably cheaper than its competitors, with the industry average at 10.6 times. Clearly things need to improve in terms of investor sentiment (and performance), but I think sooner or later the company could start to represent a real bargain.
A bargain despite the risks?
Of course, when a company's stock price falls so sharply, there are clearly concerns. Many investors are likely to suspect that recovery efforts will not be successful and that the estimated valuation is overly optimistic. However, with many companies in the FTSE 250 Experiencing similar levels of uncertainty and volatility, I don't put all the blame on Future's management team.
I'm in the camp that thinks the issues pointed out in this earnings report are well understood by the company and are short-term. As a long-term investor, I love seeing opportunities to acquire quality companies at a deep discount, so I will buy more shares at the next opportunity.
