Smiths News (SNWS) 57p

Market Cap: £142.2 million

Successful investing comes down to what you get in the future for what you lay out today. How does doubling your money in around eight years sound, with the possibility of doing even better?

In a nutshell, that is the investment case for the UK’s leading newspaper and magazine distributor Smiths News (SNWS) which has been delivering print across England and Wales for over 200 years.

The company has built an efficient and extensive network of distribution centres which allows it to distribute 20.6 million newspapers and 5.5 million magazines each week, making it the clear market leader with a 55% share.

Unmatched scale and strong customer relationships mean circa 74% of contracted revenue is secure until at least 2029 providing stability and good visibility of cash flow.

The company trades on a forward PE (price to earnings) ratio of just 5.7 times and a dividend yield of 9.1%, with the dividend twice covered by EPS (earnings per share).

This is not one of those cases where a high dividend yield reflects concern over the sustainability of income or financial stress, but simply an unloved and unfashionable business trading very cheaply.

The dividend has increased three-fold since 2019 as the company’s finances have improved, with strong cash flow allowing it to reduce debts. Average net debt has shrunk from £59 million in 2022 to £13 million in the first half of 2024.

In May, the company refinanced its banking facilities lowering the interest margin paid over money market rates to 2.45% from 4%.

Importantly, the new arrangement removes the prior restriction on the dividend of £10 million a year paving the way for increased dividends and return of capital to shareholders.

Without assuming any contributions from increased dividends and capital growth or a re-rating of the shares an investor could double their money in around eight years by simply reinvesting the current dividend, which speaks to the value on offer.

The obvious challenge for the business is managing the declining circulation of newspapers and magazines and rising cost inflation, but management has proven adept at mitigating costs and squeezing more cash from the business.

There are also signs magazine circulation is seeing a renaissance as publishers recognise magazines can engage a focused, informed and motivated audience in a way online content cannot.

The company’s organic growth strategy is gathering momentum with organic growth ventures expected to generate £2m of profit across FY 2024.

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