Friday newspaper share tips: Daily Mail and General Trust, Babcock International

Shares in Daily Mail and General Trust may turn out to be oddly cheap when the company’s media revenue curve turns upwards, argues the Financial Times’ Lex column.

DMGT has a strategy for its old media element, which appeared to be working, observed the column, noting this was a move to mass volume and no paywall media.

The company’s half-year results could be broken into a trinity of parts – business-to-business data and events divisions, then the well-known print and media titles, and also online media.

Lex said the business-to-business data and events divisions were structurally sound and moving to the rhythms of the global economy. Together they accounted for about three-fifths of revenue and three-quarters of operating profit.

But, noted the column, sales in print and media were down 7% at the half-year mark, but still accounted about a third of DMGT’s total.

Online media, which Lex described as “mostly” a tsunami of celebrity tittle-tattle and bikini shots known as MailOnline, accounted for about 10% of revenues.

Importantly, online media was growing at a rate of about 20-30% a year.

Lex noted these results were received badly by the market, which sold the shares.

“A 10% drop in the share price feels like an overreaction,” contended the column, which said declining traditional media revenue was scarcely a revelation.

Importantly, said Lex, if DGMT’s new media revenues kept growing at 20% they would within a year outweigh a 7% decline in old media.

“It has been a while coming but the media revenue curve may soon bend upwards,” argued Lex.

“When it does, shares costing 11-times earnings will look oddly cheap.”

Meantime, market concerns over Babcock International seem overdone, wrote The Times’ Tempus column, which cited volume of workload allowing growth to continue.

The column pointed to Babcock’s in-line full-year results, which saw revenues up 8% and operating profits up 4% to £539.7m.

“This,” contended Tempus, “is a company that can expect to increase revenues by 7% in the current year and at about that rate thereafter – and there are not many outsourcing specialists that can say that.”

It said Babcock’s strong exposure was to the defence sector -- where future spending has just been confirmed – was a strength.

While the company had lessened its leaning to defence – 45% now, from 70% five years ago – it continued to win contracts there. Babcock reckoned the nuclear industry might have the potential of offer up £2.3bn of work a year.

Tempus drew attention to Babcock’s £20bn order book, with the pipe of potential work at £10.5m. The company was winning more than 40% of the work it bid for, and about 90% of rebids.

The shares traded on less than 13-times earnings, which was low for the sector, although dividend was not up too much as Babcock preferred to invest in future growth, the column added on Thursday.

“The market’s concerns over Babcock seem overdone. The volume of workload there, and potentially to come, will allow growth to continue,” said Tempus, suggesting a ‘Buy’ rating on the stock.