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This UK small-cap stock is rising. Should I buy?

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·3-min read
A young woman sitting on a couch looking at a book in a quiet library space.
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Bloomsbury Publishing (LSE: BMY) is a UK small-cap stock that jumped 11% yesterday. But the shares have been on the rise for longer. In fact, since the beginning of 2021 the stock price has increased over 20%. They closed at 344p on Wednesday, up from 216p a year ago.

The publisher reported its full-year results yesterday and the numbers were strong. So much so that the company is proposing a special dividend. I’d buy this UK small-cap stock today.

An overview

The company is an independent publisher. Most people will probably know about Bloomsbury Publishing due to its success with the Harry Potter series.

It operates two divisions — Consumer and Non-Consumer — and the former accounts for over 60% of total sales. The Consumer business focuses on adults’ and children’s titles, while the Non-Consumer operation consists of academic and professional publishing.

The firm’s strategy is to expand its offering through digital channels. It’s also looking to grow internationally and reduce its reliance on the UK. It especially wants to capitalise on the large US academic market. But it has also identified significant growth potential in India and China.

The results

I was impressed by the full-year results, which were “ahead of expectations”. The popularity of reading has clearly been ramped up by the pandemic. People had more time to read during lockdown as they couldn’t go out and socialise.

Full-year revenue increased by 14% to £185.1m. And profit before tax soared by 22% to £19.2m. Overseas sales increased and now account for 64% of total revenue.

What I like about the UK small-cap stock is that the company has strong financials. Bloomsbury had a net cash position of £54.5m at the end of February (up from £31.3m a year earlier). In light of the strong performance, it declared that special dividend of 9.78p per share.

It’s worth highlighting that this additional income payment to the regular dividend indicates two things. The first is that the company is doing very well. Otherwise it couldn’t afford to make such a distribution. The second is that the board is shareholder-friendly by putting the best interests of investors at the forefront. This is something that I look for when researching stocks for my portfolio.

Risks

But I do have concerns. While many have taken up reading as a pastime during the pandemic, will this trend continue? I’m unsure at this stage. Lockdown restrictions are easing so people may ditch their books in favour of socialising. This could impact future revenue.

The stock is trading close to its all-time high as well. This means the shares could be sensitive to any negative news.

Outlook

But as a long-term investor, I reckon things look promising for Bloomsbury. It’s taking the right steps and the company “has seen a continuation of strong trading” so far in 2021/22.

It expects revenue and profit for the next financial year to be “comfortably ahead of market expectations”. The board mentioned a market consensus view of sales being £177.5m and profit before tax being £17.4m.

For now, I reckon this UK small-cap stock has the potential to rise further. Hence, I’d buy.

The post This UK small-cap stock is rising. Should I buy? appeared first on The Motley Fool UK.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021

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