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Shares in magazine and newspaper distribution firm Dawson Holdings (DWN, 153p) have had a bad year.
Thanks to the falling sales of red-top tabloids in the UK, a recently announced 13% fall in profits in Dawson’s last financial year (which ended in September), and the fact that the Office of Fair Trading has decided to look into magazine and newspaper distribution, the group’s shares have fallen from 192p earlier this year to 153p this month.
But this might just give investors a fine chance to make a good value investment, says Ben Laurance in The Mail on Sunday. Dawson shares are now trading on a p/e of only 10.6 times forecast profits for 2006 and offer a generous yield of nearly 5%.
Distribution also isn’t that bad a market to be in, being both secure (most contracts are for three to five years) and highly cash generative. And although news distribution accounts for the majority of Dawson’s activities, it also has three small divisions dedicated to distributing books, airline material and promotional goods. These divisions make up a mere 15% of the business at present, but are growth areas. Earlier this month, Dawson signed a contract with British Airways to supply newspapers to its departure gates at 51 airports. And it is also supplying consumer magazines for low-cost airlines, such as Ryanair, to sell.
All in all, says Laurance, the business looks good enough to mean that the current dividend payout is very “comfortably covered” by prospective earnings, and that alone should be reason enough to buy the shares. Where else can income investors get a yield of 5%? House broker Altium has a price target of 180p – nearly 20% higher than current levels.
Published in Investment-Advice
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Annunziata Rees-Mogg
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