DMGT downgraded after further RMS launch delays - UPDATE

Further delays for the launch of its RMS(one) risk modelling software weighed on this year's performance from the Daily Mail & General Trust and look likely to hold back 2015 results too.

A pre-close update from the media conglomerate, which owns the Daily Mail and MailOnline website as well as diverse other interests, said trading had been “solid” in the 11 months of the year so far, with underlying revenue up 5%.

DMGT's business-to-business arm, including Euromoney and Risk Management Solutions (RMS), drove revenues up 8% underlying thanks to strategic bolt-on acquisitions but was adversely impacted by the stronger British pound relative to the US dollar.

RMS, which is based in Silicon Valley and provides catastrophe risk models and software, delivered continued underlying growth but the continued launch delays for its software-as-a-service product RMS(one) required £5m of extra costs during the period and a material impairment to the £85m carrying value of the asset in the current financial year.

This dragged adjusted operating profit for the current financial year down to the bottom end of market expectations.

The launch of RMS(one) will now be staged incrementally during 2015, with the full product launch by late 2015, meaning significant revenues and amortisation costs are not expected to flow until financial year 2016.

This is significant, said analysts at Canaccord, as higher profit and loss costs will drive margins down to 10%-15%, versus expectations of 22%, pointing to a possible £25m hit to profits.

The media arm reported flat revenues, with advertising up 5% to offset a 5% circulation fall due to lower sales volumes, with MailOnline's digital advertising revenue growing 49% to £53m, exceeding the decline in print advertising revenues at the Daily Mail and The Mail on Sunday for the same period.

Underlying advertising revenues across the combined print and digital Mail businesses were consequently up 3%.
MailOnline's global monthly unique browsers in August stood at 180m, up 30% on last year, and average global daily unique browsers were 11.4m, an increase of 26% on last year.

Another highlight was that a further £100m of share buybacks is planned.

"It has been a mixed year for DMGT," wrote Canaccord analysts Simon Davies, "with significant progress in its National Media business and the crystallisation of significant value at Zoopla; however, this has been offset by the impact of RMS
(One)."

For 2014 he expects £286.8m profit befor etax (PBT) and 54.8p diluted earnings and for 2015 he trimmed pre-tax profits from £315.2m to £283.7m and earnings per share from 58.0p to 54.3p.

House broker Numis downgraded its 2015 earnings per share forecasts even lower, to 53.5p from 58.7p.

Shares in DMGT were down 6.66% to 760.25p by mid-afternoon on Wednesday.