This article was taken from the September 2024 issue of Market Insight. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.
Bloomsbury Publishing is a quintessential British name, perhaps most well-known for publishing the world famous Harry Potter series. For investors, Bloomsbury at times may have appeared to be a Harry Potter annuity of sorts, as readers of all ages return to the series. Book sales continue even 26 years after their first publication and, in 2023, Harry Potter and the Philosopher’s Stone was the number one bestselling children’s book for the first time since 2002.
However, it has become apparent that Bloomsbury’s investment case extends beyond the Harry Potter story. The most recent annual report, covering the 12 months to February 2024, showed stellar results. Sales hit £343m and profit before tax was £42m, which was 60% higher than the previous year. Return on capital employed hit 33.1%, compared to 20.4% in the year prior. On the surface, this appears even more remarkable as 72% of company revenues come from the old fashioned print business.
Indeed, new digital trends are a key driver of the exceptional book sales performance of the last year. The online BookTok community has gained popularity on social media platform TikTok in recent years, with people using the platform to share favourite books, reviews, and celebrate reading culture. Prevalent genres include young adult fiction, romance, and fantasy. ‘Romantasy’ has been exceptionally popular, a portmanteau coined by Bloomsbury which was quickly adopted by the BookTok community. With book recommendation videos often garnering millions of views, TikTok has become a powerful word-of-mouth marketing channel for authors and publishers alike.
In particular, bestselling author Sarah J. Maas has been a major contributor to Bloomsbury’s recent success. While her first book was published in 2012, she became a global phenomenon in 2023 due to a vocal and rapidly growing fanbase on social media. Her sales have grown 161% year-over year and she has now sold over 38 million copies worldwide.
While there is no book planned for 2025, she has a further six instalments contracted with Bloomsbury in the coming years. The surge in fantasy fiction demand has drawn investor attention to the company. While TikTok trends are fickle and the Sarah J. Maas hype may not last, Bloomsbury has a remarkably robust and high-quality business model. It has developed a diversified portfolio of authors and income streams across various formats, territories, and subject areas. Bloomsbury operates in both the consumer and academic markets, which offer different revenue dynamics and end consumers. Over recent years, the company has invested heavily in its Academic & Professional division, which tends to be less exposed to consumer trends and offers more resilient recuring revenues. The biggest academic market in the world is the US and, in May this year, Bloomsbury announced its acquisition of Rowman & Littlefield’s academic business, one of the largest independent publishers in the US Academic market. The deal is an exciting one for Bloomsbury and will double the size of its US Academic & Professional business.
Strategic investment in digital is another priority for the company as publishing is ‘platform agnostic’, meaning it must offer products across print, digital, and audio depending on consumer demand. Within the US Academic & Professional segment, Bloomsbury Digital Resources is expanding content offerings across its online subject hubs, benefiting from trends towards hybrid teaching methods in higher and further education, which combines online and in-person learning. Within the consumer space, Bloomsbury balances names across established best sellers and promising new authors. The majority of sales come from backlist (previous) titles, alongside frontlist (new) titles. The recent success of Sarah J. Mass shows the striking upside potential of identifying a promising author, alongside deep understanding of consumer demand and marketing channels. Combined with steady backlist sales and recurring revenues from the growing US Academic & Professional business, Bloomsbury offers a compelling and diversified mix of defensive and cyclical revenue streams.
Earnings have been backed up by a high-quality balance sheet, with a £65.7m net cash position as of February 2024. Strong free cashflow generation supports both strategic reinvestment and shareholder returns. While the dividend yield is nothing too exciting - 2.3% at the time of writing – the company has a strong track record of dividend growth, increasing at a compound annual growth rate of 9.7% over the last 10 years. Moreover, it has a policy of ensuring the dividend is at least twice covered by earnings, ensuring payouts are sustainable.
The value of Bloomsbury shares has surged 63% over the past year on the back of increased investor attention, and in August it joined the FTSE 250 index with a market cap of £533m at the time of writing. Despite the share price performance, the valuation may not be outsized at a price-earnings ratio of 16.7x relative to a five-year median of 17.9x. It is worth noting that this is based on very good earnings which may not be sustainable as consumer trends shift. Given lofty results last year, management are expecting to report a moderate fall in revenues for 2025. However, given the increasing quality of earnings, strategic investment, and healthy balance sheet, there may be some magic left for Bloomsbury.
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of writing but may have changed at point of reading.