Still printing money

Caxton is a most unfashionable investment. It is heavily invested in a declining printing and publishing sector and its efforts at diversification pale in comparison to the technological transformation achieved by Naspers.

Still, it’s a value-laden and conservatively managed counter that has more upside potential than downside risk.

We don’t expect Caxton to shoot the lights out any time soon, but there could be some upside in the share price if certain strategic initiatives pay off.

While Caxton’s operational endeavours are under strain in the moribund economy, the value proposition is compelling. IM would urge readers to pay attention to its JSE-listed “technology” subsidiary, Cognition, a vehicle to drive the group’s “cutting-edge” operations.

The first move was the injecting of Caxton’s controlling stake in real estate marketing portal Private Property into Cognition in exchange for a heap of scrip worth R127m.

As indicated in the interim results, Private Property’s revenue growth will by offset at profit level by increased spending in marketing and human capital. More deals are expected to diversify Cognition’s specialist bouquet of services — IM notes Caxton’s investment into Afritrip Group, which owns the Safari.com website that specialises in arranging and booking safaris in Africa for tourists.

The printing, publishing and distribution (PPD) hub still accounts for more 60% of top line and operating profits.

The magazine segment of the PPD division had revenue pressure from lower copy sales rather than advertising revenues (which were “stable” in the interim period). Caxton said the decline in revenues was offset by ongoing costcontainment measures.

On the commercial printing side there was only marginal turnover growth and reduced profitability, with material input costs increasing on the back of higher base prices and volatile exchange rates.

The important education textbook market was hampered by lower demand from state departments.

Growth was recorded in the magazine printing market with the recently acquired Media 24 titles being printed in the interim period.

The interim scorecard showed the PPD segment holding revenue at around R2.7bn with operating profits crimping markedly to R214m (previously R268m).

The packaging and stationery hub — which generates 38% of revenue and 48% of operating profits — continues to impress. Revenue edged up to R1.3bn (R1.2bn previously) with operating profits increasing to R163m (previously R158m).

The packaging divisions managed a commendable performance in markets that Caxton directors described as “fiercely competitive”.

Caxton said the stationery division performed to expectations and maintained market share and turnover.

The serious knock to its bottom line came from the loss-making replication business, where the market had “entered the sunset phase at an ever-quickening pace”.

While the outlook is austere for Caxton, it’s worth noting that cash generated by operations was a healthy R216m (55c a share) and that cash/near cash topped R1.5bn (385c a share). Directors also said the “strong debt-free balance sheet” showed the fair value of its properties and cash on hand roughly equating to the current market capitalisation. IM would recommend taking a long-term subscription on Caxton.