Legacy Print Reliance Will Hinder Future Potential Despite Digital Trials

Key Takeaways

• Heavy reliance on print revenue and industry-wide declines in media trust threaten growth, as digital initiatives may not scale fast enough to offset legacy weaknesses.
  
• Monetizing digital audiences remains challenging due to dominant global ad platforms and unproven paywall strategies, limiting future earnings and market share recovery.
  
• High reliance on declining print media, insufficient digital growth, pension obligations, and intensifying digital competition threaten revenue, profitability, and long-term market position.

Catalysts

Operates as commercial news publisher in the United Kingdom, rest of Europe, and internationally.

• While Reach continues to expand digital revenues and leverages a significant owned audience with investments in video, AI, and US market expansion, the company still derives 75% of its revenue from print, exposing it to persistent structural declines in print media consumption-this overhang could constrain top-line growth as digital initiatives may not scale quickly enough to offset print erosion.
  
• Although Reach's deepening first-party data and proprietary AI tools position it well for a post-cookie advertising ecosystem, the continued dominance of global digital ad platforms like Google and Meta means advertiser budgets may increasingly bypass local publishers, limiting Reach's ability to capture higher digital ad rates and restraining digital revenue growth.
  
• Despite a track record of disciplined cost-cutting and market-leading operating margins, the company's substantial pension liabilities and rigid legacy cost base will continue to weigh on net margins and cash flow until at least 2028, reducing financial flexibility to invest aggressively in growth areas.
  
• While Reach is trialing subscription offerings and diversifying digital revenues with e-commerce and branded services, adoption of paywalls and new products remains unproven; monetizing digital audiences may remain an uphill battle in a crowded market, putting a ceiling on future earnings growth.
  
• Even as news consumers seek trusted, local content and Reach's portfolio gives it credibility, sustained industry-wide declines in trust for legacy media and the rise of AI-driven, low-cost content threatens ongoing share of both audience and advertisers, potentially impeding medium-term revenue and market share recovery.

Reach Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Reach compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Reach's revenue will decrease by 3.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 9.4% today to 16.6% in 3 years time.
• The bearish analysts expect earnings to reach £78.9 million (and earnings per share of £0.25) by about July 2028, up from £49.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.9x on those 2028 earnings, down from 4.4x today. This future PE is lower than the current PE for the GB Media industry at 13.0x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

Reach Future Earnings Per Share Growth

Risks

• The company remains highly reliant on legacy print for seventy-five percent of its overall revenue, making it vulnerable to the structural decline of print media consumption as audiences migrate online, which is likely to pressure long-term revenue and top-line growth.
  
• Despite progress in digital, current digital growth rates of around two percent are not sufficient to offset declines in print, and there is execution risk in accelerating digital transformation and effectively monetizing new digital audiences, potentially limiting future earnings growth.
  
• Ongoing pension obligations require significant annual cash outflows, with sixty million pounds paid per year until at least 2027, restricting available cash for reinvestment and weighing on net margins and overall earnings.
  
• The platform faces persistent dominance of global digital advertising giants such as Google and Meta, which continue to squeeze ad rates for local publishers, risking downward pressure on digital ad revenues and overall profitability.
  
• The proliferation of AI-generated content and agile digital-native competitors increases content commoditization, potentially eroding Reach's differentiation, audience share, and ability to maintain premium ad rates, which could negatively impact long-term revenue and market share.

Valuation

• The assumed bearish price target for Reach is £0.79, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Reach's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.31, and the most bearish reporting a price target of just £0.79.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £475.6 million, earnings will come to £78.9 million, and it would be trading on a PE ratio of 3.9x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of £0.7, the bearish analyst price target of £0.79 is 11.8% higher.
  
• 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.