Connect Group – Is there a nosey buyer building up a stake?

Connect Group has an enviable 55% share of its main marketplace and a Guernsey-based investment group has been quietly building a stake, writes Mark Watson-Mitchell. 

A Guernsey-based company, Worsley Investors (LON:WINV), has quietly been acquiring more shares in this group. It now owns a 4.01% stake.

It may not sound an earth-shattering amount, especially as well over 70% of the group’s £50m equity is institutionally held, but Worsley’s purchases came on to my radar at the end of last month.

The Connect group’s Smiths News business is the UK’s largest newspaper and magazine wholesaling operator, boasting a 55% market share. It delivers some 35m newspapers each week and operates from 39 distribution centres and serves around 25,000 trade customers from Cornwall to Northumberland every day of the year.

Its final results to end-August this year will be reported on 4 November.

Worsley Investors, which used to be called AXA Property Trust, is a closed-end investment company whose objective is to seek out undervalued situations and, as an influential investor, push for capital appreciation.

Worsley’s main legacy investment from its property days is its UCI cinema complex in Curno, Bergamo in Italy. WI has recently renegotiated its rental lease out to UCI Italia at €915,000 pa running to June 2035.

The multiplex unit, the first opened by UCI in Italy in 2003, is considered to have at least a 50-year economic life. It has some 2,389 seats and 228 associated car parking spaces. Knight Frank valued the property at €9.9m in December 2019.

Now that lease is a useful-cash generator, but I think that the Guernsey company will now look to sell-off the property, which would boost significantly its working capital for ‘situation stocks’ like Connect Group.

What we know now is that Connect will soon be reporting a £1.3bn revenue year to the end of last month, upon which it might have made £27m or pre-tax profits, worth 8p per share in earnings and producing a 1p dividend. It must be noted that it operates on a £175m bank facility.

The group’s shares, which touched 39.7p last year, are currently trading at around the 20p level, which is a very low rating, especially with a 5% yield.

Despite the hassles with the Extinction Rebellion recently disrupting press production, I would hope that the November results will be bullish in tone, certainly sufficient to push the shares higher.

As I stated in my end-July profile on the company, the shares are a risky counter but, I feel, they are extremely attractive taking a short-term view and looking for a 35% uplift to my Target Price of 27p.

PS – I also happen to think that Worsley’s own shares, at 25.5p, with net assets of at least 38p per share look to be worth a little punt.