Connect Group – Dawson Media Direct adds value to the group

PUBLISHED: Jun 22 2018 @ 02:24 | Comments (0) |

Yesterday’s Newsletter described the consistently strong, if not growing, profit contribution from the News Distribution business of Connect Group (LSE:CNCT). Another profitable business, which Connect has run for years, is the supply of newspapers, magazines and in-flight entertainment technology to over 80 airlines in 50 countries under the Dawson Media Direct, DMD, name.

It has the systems to deliver these items to strict time windows, and, importantly, it has the necessary security accreditation. Profits have been consistently good for this business that uses around £13m – £15m of capital.

DMD’s numbers

£m	2 x half –year to February 2018	2017	2016	2015	2014	2013
Revenue	26.8	28.8	27.6	25.4	25.1	25.9
Adjusted operating profit	2.6	2.3	2.4	2.3	2.3	1.8
Less Exceptional items	na	-1.0	-0.4	-0.4	na	na
Statutory operating profit	na	1.3	2.0	1.9	na	na
Assets	22.8	23.0	20.5	18.9	18.8	16.0
Liabilities	-8.6	-7.2	-7.6	-7.2	-7.2	-7.3
Depreciation and amortisation	-0.3	-0.5	-0.5	-0.5	-0.4	-0.4
Additions to non-current assets	0	0.2	0.3	0.2	0	0

DMD has created a good niche business for itself generating around £2m for shareholders annually.

If we assume that this £1.6m after tax profit does not grow (to be conservative), then the present value of its future cash flows, when discounted at 8%, are,

£1.6m/0.08 = £20m

Are the managers optimistic about DMD?

Here is what they wrote in the interim report published in May: “Sales to airlines and travel points were £13.4m, down 4.9% year on year, impacted by the usual mix of contract wins and losses. Adjusted operating profit of £1.3m was up 23.0% compared

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