2015 had been a challenging year for investors in regional newspaper publisher Johnson Press (LSE: JPR) with the company’s shares having fallen by around 16% since the turn of the year. However, things have got worse today, with the company releasing a profit warning that has sent its shares lower by a further 16% today.
This may come as something of a surprise, with Johnston Press experiencing a relatively robust first quarter. However, the second quarter of the year has been far more challenging, with a slowdown being experienced around the General Election in May, with the company not expecting its performance to pick up in July. As such, profit for the full year is set to miss market expectations.
In fact, Johnston Press has said that revenue for the first half of the year will be around 5.5% lower than in the comparative period last year, with a continued decline in advertising spend and in circulation hurting the company’s performance. This is a faster rate of decline than was experienced in the same period last year, when a fall of 4.3% was reported, and will have a direct impact on the company’s profitability.
Of course, while disappointing, today’s update also provided hope for investors in Johnston Press. Digital revenue is up around 17% in the first half of the year and the company believes that there are positive indicators coming through, with continued strong cash flow and growth in digital audience being notable examples.
Furthermore, Johnston Press continues to be very attractively priced – even if it misses its profit expectations for the year. In fact, it now trades at a significant discount to net asset value, with it having a price to book (P/B) ratio of only 0.76. And, with it previously being forecast to deliver earnings per share of 28.3p for the full year, it was trading on a forward price to earnings (P/E) ratio of just 5 before today’s price fall. In other words, Johnston Press was dirt cheap based on previous forecasts and, even though it will now miss those forecasts, its shares still appear to offer good value for money – especially if it can improve its performance during the remainder of the year.
Clearly, the publishing of regional newspapers is an industry that is enduring a major transitional period, with digital fast becoming the place where most people consume such titles. And, while this means pain in the short run for Johnston Press, it appears to be making the necessary changes to adapt its business model to changing customer tastes and to new technology.
So, while the short to medium term performance of the business may disappoint, its longer term prospects as an investment appear to be relatively bight, albeit risky. And, with such a low valuation, there appears to be a significant amount of potential reward on offer for less risk averse investors.