'Extraordinarily challenging times' at Johnston Press as share price tumbles

Johnston Press chief executive Tim Bowdler has said his team is ‘managing the business as best we can in extraordinarily challenging times’ as the company’s share price hit single figures this week.

Johnston Press is the UK’s second biggest regional newspaper publisher and last week its share price hit a new low of 6.5p. This morning it had risen slightly to 7.8p – giving it a market capitalisation of £48.6m.

The share price is extraordinarily low given that earlier this year Johnston reported half year profits of £81.6m on revenue of £293m. The low price is based around concerns about the level of debt Johnston is carrying and on gloomy predictions of future profits, given the current slump.

Bowdler – who will be replaced by Archant’s chief executive John Fry in January – told Press Gazette that there is little that the company can do directly about the share price in the current climate.

He said: ‘But what we are doing is managing the business as best we can in what are extraordinarily challenging times and clearly taking note of essentially what we believe to be things of concern to the market and making sure we’re addressing those as best we can.

“Those are the decline in advertising, structural challenges and the issues over the balance sheet and the amount of debt we are carrying. These are the centre of our focus as we manage the business.”

Bowdler said he could not comment on whether he thought the current share price of his company was too low.

He said: “I would drive myself mad if I tried predict the movements of the stock market, or be extremely rich. It’s best to worry about the things that you have some control over rather than things that you don’t.”

Speculation has been rife over the future of the publisher’s three Scotsman titles, which it paid £180 million for in 2006 – more than three times what the stock market currently values the whole company at. But Bowdler declined to be drawn on this.

Shareholders who have a ‘significant reliance’on the share price are in particular finding the current situation ‘mentally disappointing”, said Bowdler. ‘As a board and as a management we are intensely aware of those difficulties. Our job is to try to bring about circumstances which improve the way in which the company is observed and hope that that does reflect in an increase and improvement in the share price.”

Earlier this year Johnson Press cut its debt from £692 million to £484 million from the sale of 20 per cent of the business to Malaysian billionaire Anand Krishnan and through a rights issue.

However, analysts have showed concern over the company’s ability to refinance its current debt total of £465 million, which comes to the end of its fixed term in 2010 and therefore will require refinancing next year. If the current credit squeeze continues this could cause significant problems for the publisher of 18 daily newspapers and 300 weekly ones.

Bowdler said: “It’s naturally something which the market has a degree of concern over given the difficulties of the credit market and restrictive nature of the banks at the moment and the pressures that we’re seeing on advertising revenues.”

What the analysts say:

Alex de Groote, an analyst at Panmure Gordon, said the debt is the main factor in the low share price. ‘Its profits have caved in, or the perception of its profitability next year has really deteriorated. Unfortunately it’s saddled with a large amount of high debt just as we’re about to enter the biggest recession since the 1930s,’he said.

‘The refinancing or some comfort from the banks is very important. As far as they’re concerned in operational terms, sadly they just have to make themselves as resilient as they can to a very difficult trading environment, but it is a very difficult trading environment.”

Lorna Tilbian executive director of Numis Securities said in a report earlier this month that the best case scenario for the company would be a debt refinancing on ‘more onerous terms”, although added that this may only provide a temporary breathing space ‘should the downturn be prolonged”.

The worst case scenario, reports Tilbian, would be a ‘covenant breach and debt for equity swap”, which would wipe out what remains of the current equity value.

‘While the shares have already fallen a long way, a more positive recommendation will only be appropriate once refinancing is completed and/or there are some signs of stabilisation in advertising revenue,” she said.

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