PMP: Result 2015
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The remarkable transformation of PMP continues to impress with the business revealing pleasing full year results. Revenue was slightly below expectations, falling 10% to $811m but this was largely a result of not rewriting loss making contracts and one large customer buying their own paper.
On an underlying basis, that is, on work that actually attracts margin, revenue fell by 4% with slightly lower volumes to blame.
| FY2015 | FY2014 | Change % | |
|---|---|---|---|
| Revenue | 812 | 899 | -10 |
| EBITDA | 58 | 63 | -8 |
| NPAT | 12.1 | 11.8 | 3 |
| Free cash flow | 35.5 | 44 | -19 |
| DPS (cents) | 1.8 | 0 | n/a |
Operating profit fell 9% but was a respectable $26m, a fall in Australian profits offset by increases in New Zealand. The magazine distribution business continues its unstoppable decline and is more valuable as a means of keeping up utilization rates rather than a source of profit.
A key part of the investment case when we upgraded in PMP: back from the brink (Spec Buy - $0.53), was that high free cash flows could be used to repay debt and ultimately, to make acquisitions or pay dividends.
Encouragingly, the business revealed free cash flow – operating cash flow minus capital expenditure – of $35.5m, implying a free cash flow yield of over 20%. Over the next few years, we expect similar levels of free cash generation.
Debt which once threatened the business has been reduced to just $16m and the company will be debt free by the middle of next year.
Debt reduction allowed a modest dividend of 1.8c to be declared. PMP's first dividend in four years implies a yield of just over 3% at current prices. The yield may be modest today but the business has the capacity to pay more and, once debt has been repaid, we expect dividends to increase.
The catalogue market remains intensely competitive and, while we are pleased with PMPs performance to date, the real upside for investors is a possible takeover of a rival to eliminate capacity and lift utilization rates and margins. That is a longer term aim but, so, far, PMP is on track.
The share price hasn't budged since our upgrade but risk is lower now than when we first recommended it and the investment case is arguably stronger. SPECULATIVE BUY.
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