National World – amassing a new media empire

National World is amassing a new media empire with four aims: to localise, to energise, to digitise and then to monetise.

A very long time ago I learned that opportunistic investors do well when they ‘follow the man’ – that is not meant as a sexist statement but instead one of good advice.

Whether that man or woman has done well before or whether he or she is a total flop it is sensible to take heed of that market adage.

So continual ‘spoofers’ are identified and investors steer clear of any involvement.

However, those that have a good track record, where you appreciate their business methods and their corporate strategies, prove themselves well worth following.

One such man to follow is David Montgomery.

A man of all ‘titles’

His experience in the newspaper business is, possibly, second to none.

From working at the Daily Mirror, he then went on to The Sun. That was before he became the editor of the News of the World, then Today.

During the 1990s he was the Chief Executive of the Mirror Group, from which he resigned in 1999.

A year later he set up the Mecom Group, which specialised in media mergers and acquisitions. He was its CEO until 2011.

Made four times their money

In 2012 he set up a company called Local World, an innovative media publishing business, through which he acquired a number of newspaper companies. In the process he built up a stable of over 100 UK regional newspapers and their associated websites.

He sold out Local World to Reach, the owner of the Trinity Mirror group in 2015. Original investors gained over four times their stakes.

His new vehicle

Subsequently he established National World (LON:NWOR).

The new company gained an official listing in September 2019, when it floated its 54m issued shares.

Montgomery’s aim with his new group was to use the same strategy that he used at Local World, looking to acquire both historic and more recent news brands.

A modern platform

Through using technology to change the business model for print and digital news publishing, he employs continued cost reduction with a view to sustain online revenue growth.

He then looks to jettison legacy systems and archaic industrial practices to create efficient dissemination of news, monetising it by matching content to audience.

His new publishing business model enables his management to localise, energise, digitise and monetise relevant and unique content.

What is its aim

The declared objective of the company is:

“To create a modern platform for news publishing through the implementation of a new operating model across multiple brands and platforms by acquiring a number of media and digital technology assets and leveraging its portfolio to launch new media brands across the UK.”

His first NWOR acquisition

Within three months of coming to the market the company confirmed that it had been contemplating several acquisitions. It also stated that it had approached JPI, the remnants of the former Johnson Press International provincial newspaper empire.

That was early December 2019.

At the very end of 2020 the company announced the £10.2m acquisition of JPI Media Publishing and associated subsidiaries, making up the JPI Group, from JPI Media Ltd.

In one big blow Montgomery kicked off the first part of his corporate strategy for National World.

That cash and loan notes deal includes a range of 13 regional and city daily newspapers, together with over 100 other franchises in print and online.

Third biggest local publishing group

The JPI Group is the third largest local news publisher in the UK and its iconic titles and websites include: The Scotsman, The Derry Journal, The Yorkshire Post, Belfast’s The Newsletter (the oldest English language newspaper in the world), The Sheffield Star, Edinburgh Evening News, The Portsmouth News and The Lancashire Evening Post.

In the year to 2 January 2021 the JPI Group is estimated to have some £85m of sales and an EBITDA, before exceptional costs, of £6m. Some £17m of those sales were derived from digital revenues.

It was not until Tuesday 4 May that the group was able to publish its Prospectus, effectively a ‘reverse takeover’ document. That enabled the group’s shares, which had been suspended since December 2019, to be ‘requoted’ on Friday 7 May.

The broker’s opinion

Analyst Paul Richards, at the group’s brokers Dowgate Capital, forecasts that it will see revenues of £83.1m for this year to end-December, with adjusted pre-tax profits of £4.7m, generating 2.0p in earnings per share.

For 2022 he sees £82.3m sales, £7.3m of profits, 2.3p of earnings and a dividend of 0.5p per share.

Modestly he has pencilled in £83.7m of revenues for 2023, £8.1m profits, 2.6p earnings and 0.6p per share in dividend.

Obviously a lot more to come yet

I say modestly because Montgomery is only just getting started on his strategy of technology-driven news publishing, with the objective of transforming the sector through acquisition and partnership.

He still has cash in the group’s coffers, together with a growing equity base through which to help fund further acquisitions and other growth opportunities.

With a market capitalisation of just £48m it has tremendous flexibility, enabling it to easily expand.

Interesting equity holders

There are now 260m shares in issue. 

The largest holder is MediaForce, one of the UK’s leading media groups, with 23.9% of the equity.

Other investors include Aberforth Partners (20.5%), Alasdair Locke (9.9%), David Montgomery (7.4%), Trium Capital (4.8%), Gresham House (4.7%) and Canaccord Genuity Wealth (1.8%).

Great track records and opportunities abound

With Vijay Vaghela as his Chief Operating and Financial Officer, and Mark Hollinshead as Chief Commercial Officer, Montgomery has put together a very experienced management team, with a strong track record.

There are masses of acquisition opportunities out there in the publishing and media sector, especially so for a small group looking to grow by ‘buying to build’.

My View

On the first day that the shares came back to the market they leapt to a 24p peak, before resting in the 17.5p to 19p trading range over the last six trading days.

They closed on Friday night at 18.5p. 

On the basis of the Dowgate estimates they are trading on 9.2 times current year earnings, dropping to 8 times next years and only 7.5 times estimated 2023 earnings.

I believe that as we start to see proof that Montgomery’s strategy is working on JPI, those ratings could well double.

I now set a target price of 25p, which could be achieved in a fairly short time span.