Shares in the publisher behind the Daily Mirror and Daily Star tanked as much as 25 per cent today, wiping about £180m from the company’s market value, after it warned that inflation would hit its 2022 profits hard.
Despite digital revenue up over 25 per cent to £148.3m and 10m sign-ups across its titles, investors seemed to only hone in on the London-listed firm’s comments on inflation.
Indeed, Reach stated that the situation had “intensified” in print, putting further pressure on the group. In turn, it warned shareholders that these are expected to affect 2022 profits.
On top of this, it shouldn’t be forgotten that this is an industry that has already felt the burn of rising distribution costs and supply challenges, let alone the impending doom of rocketing energy prices and nationwide inflation woes.
Chief exec Jim Mullen said that despite inflationary pressures in print, the firm was “committed to maintaining our focus on sustainable long-term profit growth, investing in product innovation and a more personalised user experienceMoving forward, Reach stated that it was transitioning to become more digitally driven.
This seems like a reasonable strategy for a group that was able to maintain a large amount of page hits even beyond the pandemic rush of traffic.
Analysts at Peel Hunt forecast that the group’s profits for this year would drop to £134.3m. “We feel the downside from here is now limited,” said analyst Malcolm Morgan.
Meanwhile brokers at Numis and Panmure Gordon held its ‘Buy’ rating, expressing confidence in Reach’s digital strategy moving forward.
Johnathan Barrett, equity research analyst at Panmure Gordon, said: “While the geopolitical environment is ringing alarm bells and inflation is causing
a cost headache for corporates, Reach is well on track to commercialise its digital potential and fundamentally change the value of the business.'”
He said that investors should see the number of registered users and the product potential as a “dynamic opportunity”, and not be “distracted” by inflation.