Bloomsbury Publishing – Harry Potter and the Generator of Cash #BMY

Bloomsbury Publishing – Harry Potter and the Generator of Cash #BMY

Introduction

Perhaps “Generator of Galleons” (the Harry Potter currency) is more appropriate!

I am not sure if everyone has heard of Bloomsbury Publishing, but I am sure we have all heard of Harry Potter – Bloomsbury are the publishing house for Harry Potter (as well as other books).

A brief history

As one can imagine, book publishing is akin to VC investing – every now and again, something will come along that will capture the imagination and create a durable brand.

Harry Potter did this for Bloomsbury Publishing – see all time price history below. The first book was published in June 1997 and over the next 20 years, the business has returned 10x excluding dividends.

I believe the last in the series was published in 2007.

The wizard creates a high quality business

Harry Potter certainly has been the wizard so far as #BMY financials are concerned.

However, what I find truly impressive about this company, and why I believe they have multi-bagged isn’t just the success of Harry Potter, but how the proceeds from Harry Potter have been re-invested in the business.

Through acquisition, the company diversified into the academic & professional sector, and education (across the primary, secondary and tertiary tiers) – stickier / recurring revenues, childrens’ books (in addition to Harry Potter –yes I appreciate that Harry Potter is very popular among adults too!) and Adult books (novels and cookery).

They have also recently expanded into digital resources and are also starting to publish (or is it record) audiobooks.

The net result of all this is a diversified publishing business, generating predictable revenues and what I consider one of the most recognisable brands in entertainment.

Interim Results

Interim results were announced on 29th October and you can view them at this link.

Expenses are stable throughout the year and nothing jumped out at me here.

Consumer division underperformed versus prior year but digital is showing some growth.

The non consumer business (i.e. not relying on smash hits) was 42% in the half year to August 2019 (versus 37% to August 2018 and 39% in full year Feb 2019)

They generate some 85% of profits in the second half, so that is pretty much all I have to say about the results.

Cash generation

From 2014 – 2019, they spent £37m on acquisitions over 5 year and total assets increased 31% from 2014 to 2019.

Profits over the same time are flat – silly acquirers!

A picture is worth 1000 words, so hopefully the pictures below are worth 3,000 words.

Revenue growth = 49%. Growth in revenue > Growth in Assets– maybe not so silly!

Growth in Operating Cashflow = 35%

Growth in Free Cashflow (pre-acquisition) = 37%

 

Op Cash conversion: 5 year average = 140%

Free cash conversion pre-acquisition: 5 year average = 108%

My View

As you may have gathered, I like this business. It is stable, cash generative and a quality brand underlying the core earnings.

If Peppa Pig is worth 4x book value and 20x earnings, Harry Potter can’t be that far behind.

At 14.5x earnings, BMY sits between Pearson @ 12x and Relx @ 19x, so on an earnings basis. It seems somewhere around fair value, albeit the latter have more debt.

On Price:Sales and EV:EBITDA, #BMY comes out on top.

These metrics would be more flattering if we used EV: Sales as BMY has net cash.

Company P:E P:S EV: EBITDA
#BMY 14.5 1.2 10.6
#REL 18.9 4.6 15.7
#PSON 12 1.3 11.6

(Data from Stockopedia)

I think this is a wonderful business at a fair price (some old guy says buying businesses like this is not the worst thing you can do).

Brand value, cash generation and growing dividends – for the more patient amongst us, #BMY could be a portfolio wizard, or as JK Rowling might say, a goblet of dividends!

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