UPDATE 1-Smiths News wins contract extensions; shares rise

Tue Jul 9, 2013 5:58am EDT

(Adds analysts' comments, details; updates share movement)

By Abhirup Roy

July 9 (Reuters) - Smiths News Plc, the largest newspaper and magazine distributor in the UK, said it won two contract extensions with a combined value of more than 320 million pounds ($478.00 million), pushing shares up as much as 7.5 percent.

The company said it extended wholesaling agreements with Associated Newspapers Ltd, publisher of the Daily Mail and Mail on Sunday, until October 2021 and with COMAG, distributor for publishers such as Cosmopolitan, Vogue and GQ, until December 2020.

Smiths News said it had now secured about 800 million pounds of revenue at its newspaper and magazine distribution business until at least 2019.

"The company has a roughly 6 percent dividend yield, and secure revenues and visibility on revenues essentially underpins that dividend yield and the growth in that yield," Edison Investment Research analyst Zsolt Mester said.

Smiths News also reported a marginal increase in revenue for the 44 weeks to July 6, helped by contribution from its 2012 acquisition of The Consortium, a distributor of consumable supplies to the education sector.

The company has been expanding its higher-margin book wholesaling business and diversifying into educational supplies, with the aim of generating half of its revenue from outside the newspaper and magazine wholesaling business by 2016.

While revenue from its Bertrams book wholesaling business increased 2 percent on a like-for-like basis, for the period, revenue from its newspaper and magazine distribution business fell 4.6 percent on a like-for-like basis.

The newspaper and magazine business accounted for more than 80 percent of total revenue in the first half of 2013.

"The challenge for them is just to maintain profitability in that (newspaper and magazine distribution) business while revenue declines," N+1 Singer analyst James Tetley said.

The company's diversification strategy mirrors that of rival John Menzies Plc, which receives most of its profit from aviation support services.

Menzies had in March said it expected trading at its newspaper business, which distributes the Financial Times and the Independent in the UK, to remain challenging in 2013 as customers buy fewer magazines.

Shares in Smiths News were up 7 percent at 167 pence at 0950 GMT on Tuesday on the London Stock Exchange. ($1 = 0.6695 British pounds) (Reporting by Abhirup Roy in Bangalore; Editing by Gopakumar Warrier, Supriya Kurane)

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