Acquisition Of Rowman & Littlefield Will Expand Digital Offerings But Integration Risks Remain

Key Takeaways

• Strategic acquisitions and digital shift are expected to boost Bloomsbury's academic sector growth and improve margins through greater digital resource sales.
  
• Increased global student numbers and blockbuster adaptations are anticipated to drive future revenue growth and diversify revenue through international expansion.
  
• Budget pressures, integration challenges, and the shift to digital in the academic market may impact Bloomsbury's revenue and financial performance.

Catalysts

Bloomsbury Publishing Plc publishes academic, educational, and general fiction and non-fiction books for children, general reader, teachers, students, researchers, libraries, and professionals worldwide.

• The acquisition of Rowman & Littlefield is expected to contribute to substantial revenue growth, as it expands Bloomsbury's footprint in the academic publishing sector and presents opportunities for digital transformation and integration of their 41,000 titles. This should positively impact revenue and earnings.
  
• The shift from print to digital in the academic market, a trend anticipated by Bloomsbury, is set to enhance margins and profitability, with a 44% increase in e-book sales and further expansion of Bloomsbury Digital Resources. This will likely improve net margins.
  
• The projected increase in global student numbers by over 70% by 2030, particularly in Asia, is expected to drive demand for academic resources where Bloomsbury has positioned itself well with a strong digital platform, thus impacting future revenue growth.
  
• The upcoming Harry Potter TV series and potential film adaptations of other popular titles like Sarah J. Maas' works are anticipated to boost book sales significantly, fueling revenue increments through enhanced market exposure and consumer interest.
  
• Continued focus on international market expansion, with over 80% of revenue now coming from outside the UK, enhances Bloomsbury's growth prospects and diversifies revenue streams, supporting both revenue and earnings growth going forward.

Bloomsbury Publishing Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bloomsbury Publishing's revenue will decrease by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.8% today to 7.9% in 3 years time.
• Analysts expect earnings to reach £28.4 million (and earnings per share of £0.37) by about March 2028, down from £37.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as £35 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.7x on those 2028 earnings, up from 12.6x today. This future PE is greater than the current PE for the GB Media industry at 12.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.72%, as per the Simply Wall St company report.

Bloomsbury Publishing Future Earnings Per Share Growth

Risks

• The academic market is experiencing budget pressures, particularly in the UK due to restrictions on international student numbers and fee caps, which could impact Bloomsbury's academic revenue.
  
• The integration of the Rowman & Littlefield acquisition is crucial, given its large scale and the high financial stakes involved. Poor integration could negatively affect Bloomsbury's earnings.
  
• The shift from print to digital in the academic market needs careful management to ensure continued revenue growth, as print declines could impact traditional revenue streams.
  
• Smaller and mid-tier U.S. academic institutions are facing financial difficulties, potentially leading to reduced purchases of academic content and impacting Bloomsbury's revenue in that segment.
  
• Near-term difficulties in the academic market are acknowledged by the company, which suggests they may continue to impact financial performance until corrected by long-term trends.

Valuation

• The analysts have a consensus price target of £8.284 for Bloomsbury Publishing based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £358.6 million, earnings will come to £28.4 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 6.7%.
• Given the current share price of £5.8, the analyst price target of £8.28 is 30.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.