Buy Centaur Media at 50p

Argues Tom Winnifrith of t1ps.com

This tip is already 18% ahead on when I advised my readers to buy. I am publishing a new hot t1p on t1ps.com in a couple of days. Actually it is really boring. Generates cash. offers a great yield, low multiple - what more could you want? To catch that tip call Michelle now on 0207 562 3372 or click HERE

Despite Gordon Brown's protestations, the economic cycle is alive and kicking and Fully-Listed Centaur Media is a geared play on this fact...
Its cyclicality and operational gearing have seen it recently announce significant declines in turnover and profitability...
But significant costs have been taken out of the business and investment in key areas (online) increased...
The recovery in the UK may well lag that of other economies but as confidence returns Centaur is likely to see revenue and earnings zoom ahead again...
At 50p, the shares are a "buy".

Centaur Media (CAU) is a specialist business publishing and information group. The company was established in 1982 and admitted to AIM on 10th March 2004 as Centaur Holdings. In December of the same year it moved up to the main market before changing its name to Centaur Media plc in May 2006. Today it recognises its operations in five segments;

Legal & Financial - includes magazines such as The Lawyer, Mortgage Strategy, Money Marketing and Fund Strategy as well as accompanying online presence (thelawyer.com, mortgagestrategy.co.uk etc) and events such as legal conferences and investment summits.

Marketing & Creative - As above, has leading titles and web presence in this area - including MarketingWeek and DesignWeek. Also organises events such as Marketing Week Live.

Construction & Engineering - Construction includes a number of magazines and online portals for the home interest market and events such as Homebuilding shows whilst the engineering portfolio includes The Engineer magazine, the only title serving the UK's engineering technology community, and the accompanying theengineer.co.uk.

General Business Services - encompassing magazines, websites and events covering areas such as Human Resources, Recruitment, Logistics and Business Travel.

Perfect Information - provides workflow solutions and global financial information mainly to law firms and investment banks from an extensive information database.

The Ugly... Decline in results

On 25th February Centaur reported an adjusted pre-tax loss and net cash outflow of GBP0.5 million in the six months ended 31st December 2009, down from a GBP3.7 million profit in the corresponding 2008 period. This was on revenue 24% lower at GBP23.9 million - as the numbers "continue to reflect weakness in our served markets".

The Bad... UK economic recovery may not be as swift as some seem to be anticipating

Particularly with its high dependence on advertising, Centaur stands to benefit significantly from a cyclical recovery. However, whilst the emerging economies of the East look to their growth rates recovering relatively swiftly, Centaur's products and markets are predominantly UK-based and as has been argued here on multiple occasions the UK economy is in a much less favourable position (debt levels, onerous regulation etc, etc) than many which will likely mean recovery at a slower rate than many people now seem to be anticipating. The principal revenue sources, particularly advertising, also tend to carry low forward visibility.

The Good... Costs have been significantly reduced, yet investment in key areas increased - positioning the company well for recovery

Centaur responded swiftly to the dreadful market conditions by taking out significant costs but continued making investment to strengthen market leading positions and support future growth. As such, as weaker competitors have contracted or gone bust, Centaur has managed to improve its competitive position as its leading brands have increased market share.

At the interims the company noted "increasing confidence in trading conditions" and, reflecting this, the interim dividend was increased from 0.5p per share to 0.6p per share.

Forecasts, Valuation and Conclusion

Centaur was t1pped at 44p in October as a play on Gordon Brown being wrong again - i.e. that despite his belief that he could abolish 'boom and bust', the economic cycle actually remains alive and kicking. It is my belief that we are in at close to bottom of the cycle levels and that as gradual recovery emerges, the cyclicality and operational gearing of this company will see revenue and earnings move ahead swiftly.

This is a point the company has also made - with founder and director Graham Sherren noting in the company's results statement for the year ended 30th June 2009 that "whilst progress may initially be slow I expect revenues to return to their previous levels as we begin to take full advantage of this recovery". In the year ended 30th June 2008 Centaur delivered underlying EBITDA of GBP21.5 million on revenue of GBP90.4 million. With the shares at 50p, the current market cap is GBP70 million and with trading conditions looking to gradually be turning around, the potential for long-term gains is thus clear. "Buy"

Key Data

EPIC: CAU
Market: FULL
Spread: 49p - 51p (3.9%)

Tom Winnifrith edits t1ps.com where he publishes 20 t1ps a year with a constant stream of updates. T1ps also plays home to bear raider Evil Knievil. For one year's access and FOR MY NEXT BORING T1P for as little as GBP73 click HERE