When investors and analysts come to New York next week for
the annual mid-year review conference, the newest and smallest publicly-traded newspaper company merits some special attention.
That would be
A.H. Belo, spun out from its broadcast partners in February, with no debt and a charter to invest aggressively in developing digital ventures. The no-debt arrangement also allows A.H. Belo to start life paying out a majority of its cash flow in dividends to investors. At $1.00 per year with shares trading at $9.40, that is an eye-popping return of more than 10 percent.
To date, though, A.H. Belo stock isn't doing much better than newspaper stocks generally. It fell from a start of $14 down to around $7.50 two weeks ago, before bouncing back to the current level. Choosing to stay with Wall Street may be, in the words of that classic Texas honky-tonk ballad, "Looking for Love in All the Wrong Places."
My hunch, though, is that CEO
Robert Decherd, whose family dominated Dallas media for a century and a half, knew the initial reception to a "pure-play" newspaper company would be chilly -- and has his eye on a longer-term strategy.
Decherd said as much in a six-page
"Letter to Shareholders" April 21. Among other things, he wrote that the new company will spend little time "analyzing sub-categories of print advertising that are not as meaningful as in the past." Instead it will try to focus a conversation with investors on metrics involving new products, both digital and print.
Among initiatives, Decherd's letter highlights:
- The company has been especially aggressive in shedding so-called junk circulation that advertisers don't really want. At the same time, it is planning circulation price increases at the Dallas Morning News and its dailies in Providence and Riverside, Cal.
- It has contracts in Dallas and Riverside to print four competing newspapers.
- A.H. Belo news sites raised the number of unique visitors 60 percent in the first quarter of 2008, compared to the same period a year ago.
- Even in advance of the full rollout of a Yahoo national online advertising platform for which many partnering newspapers have high hopes, the company has seen significant traffic growth from Yahoo references to its stories.
The hitch for A.H. Belo and others in the Wall Street dog house is that the payoff for these efforts -- that is, revenue gains commensurate with losses on the print side -- is three to five years away.
That prompted Goldman Sachs analyst Peter Appert to headline his initial report on the company May 29, "Intriguing valuation, but industry challenges keep us on the sidelines." Appert notes that shares are trading at a bargain multiple of just 3 X projected 2008 (
EBITDA) while the industry norm is just below 7 X.
That means that the market values
the whole company (the three major dailies, a smaller daily in Denton, Texas, and some weeklies) at less than $200 million, only a third of what Cablevision is paying for
Newsday alone. (Not that A.H. Belo is for sale at that or any other price; like the New York Times and Washington Post companies, family shareholders have a majority of voting shares).
Next week's meeting reflects the shrinking universe of public newspaper companies and their waning interest for investors. Seven will be presenting, eight if you count Rupert Murdoch's News Corp., for which newspapers -- even after The Wall Street Journal acquisition -- are a small piece of the action. Journal-Register has been delisted and is reorganizing; GateHouse chooses not to present at such meetings; and E.W. Scripps is completing a split similar to Belo's during June.
Also Deutsche Bank Securities has taken over as host from the Newspaper Association of America. Newspaper companies are no longer the featured acts but mingled among several dozen company presentations and panels on a variety of media and telecommunications businesses. Check back next week for reports from the meeting.
