Why I’d buy this small-cap, despite the shares sinking 25% in four months

Bloomsbury Publishing (LSE: BMY) is best known for publishing the Harry Potter series, but there is so much more to the company than that. A renewed focus on growth has been driving the business forward. City analysts following the firm expect earnings to lift around 2% in the current trading year to February 2019 and 12% the year after that, which averages out to a worthwhile rate of expansion.

Growth at a reasonable price?

I think the firm is attractive because of its valuation too. The current share price has drifted down around 25% from its June high and sits close to 197p, which throws up a forward price-to-earnings ratio a little over 12 for the year to February 2020. The forward dividend yield runs close to 4.3%.

In today’s half-year results report, the directors said the firm is “trading in line with the Board’s expectations for the full year.” Revenue in the first six months rose 4% compared to the equivalent period the year before and adjusted diluted earnings per share moved 12% higher. Historically, the firm’s trading figures have been biased to the second half of the year, so I’m expecting H2 to look like a bumper result compared to H1. The directors expressed their confidence in the outlook by pushing up the interim dividend by 5%.

Bloomsbury is busy integrating its May acquisition of London-based academic publisher I B Tuaris, for which it splashed out £5.8m. In today’s report, the directors said the acquisition is on course to contribute £3.5m of revenue and £0.3m of profit for the full year, which looks promising. Meanwhile, in another growth initiative, the company announced today “a significant seven-figure deal” with the Institute of Chartered Accountants in England & Wales (ICAEW) to provide ICAEW firms with core tax and accountancy content online.

A bigger Bloomsbury

The agreement lasts five years and provides the employees of eligible ICAEW firms with access to Bloomsbury’s online tax and accountancy service, which includes core legislation, expert commentary and tax cases aimed at supporting firms in their client practice work. The company said in the announcement its Bloomsbury Professional division has some of Britain’s leading tax advisors and practitioners writing expert content. Greg Kilminster, managing director of Bloomsbury Professional said: “Collaborating with ICAEW to provide content is a key initiative for us.” He asserts that the firm’s practitioner content is “widely recognised as being core to the tax and accountancy market.”

I find these developments encouraging and supportive of the firm’s clear focus on growth, which involves seven key growth initiatives that the directors are pursuing under the banner of ‘a bigger Bloomsbury’. The first half saw “notable” progress in the profitability of the Adult and Academic & Professional divisions, growth in overseas sales and “continued” improvement in the working capital figures.

The global strategy for expansion includes building up sales in the US, Australia and India, as well as “developing” business in China by publishing books in English in the west for “major Chinese publishers”. Overall, Bloomsbury has been making quiet progress for years but I sense renewed vigour in the growth rate and expectations of the firm and see the shares as attractive.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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