NEW YORK, July 18, 2003 (PRIMEZONE) -- Investrend Research affiliate Fundamental Research Corp. analyst Brian Tang, CFA, has initiated coverage of Broadview Press, Inc. (CDNX:BDP), noting that the company has been consistently profitable since 1992, its capital structure shows negative net debt to capital, free cash flow has been positive since 2001 and total unit sales have grown an average of 14.9% pa since 1988.
Tang assigned the company an average value of C$0.24 per share, reached by using the average intrinsic value derived from DCF and multiples valuation.
In his report, Tang notes that Broadview Press Inc. is an independent publisher focusing mainly on the academic textbook market. "The company publishes textbooks primarily on the social sciences and humanities. The company's revenues are derived almost equally from domestic Canadian sales and export sales (mainly to the United States). In 2002, the company published 57 new titles, and sold 153,000 units," the analyst stated.
A summary of Tang's initial report follows:
"Publishers face a trade off between increasing print runs, which lowers units costs (through economies of scale), and managing inventory effectively to reduce cash investment in working capital. While increasing print runs lower unit costs, it exposes the company to having a larger investment in inventory that may have to be written off if the books do not sell. This is somewhat mitigated by the fact that academic textbooks usually have longer shelf lives than a typical trade publication. However, if inventory is kept too low, publishers face not being able to meet demand. Therefore, it is important to keep an eye on cost of goods sold and inventories when analyzing companies in this industry.
"Broadview has been successful at improving its inventory and accounts receivable days offset by shortening payables days and growing inventory write-offs as a percentage of net sales. The company seems to have recognized the shortening payables days and we look for them to improve on this going forward.
"In academic publishing, a company's reputation for specializing in a specific area plays a large part of its competitive advantage. Companies compete both on price and special features of books. In general, the academic market enjoys more stable margins relative to the trade (consumer) sector. Margins in the academic sector are supported by: lower discounts to retailers (university bookstores), lower sales returns (the publishing industry is unique in that it allows retailers to return unsold products), and lower promotion costs.
"One factor supporting lower returns in academic publishing is that university bookstores can forecast demand better than a retail trade book outlet because university bookstores can base demand on class enrollment data. Contrast this to the difficulty a trade retailer would have forecasting demand for a new fiction adventure novel. Also, promoting academic books does not entail the same promotion costs as trade books. Academic publishers focus their sales efforts largely towards professors who choose which books to use in a particular course. Compare this to the release of a new Harry Potter book with its wide scale media advertising costs.
"Another advantage of the academic publishing sector is that market research data is easier to obtain. Sales personnel are frequently in contact with university professors who provide feedback about course textbooks. In contrast, trade publishers usually obtain market data through traditional means, like surveys, which typically have low response rates. A key advantage to focusing on the university market is that students must generally buy the books assigned by professors. This separates the buying and decision making process which, when combined with government grants to students, lowers the price elasticity of textbooks. Furthermore, the life of a book in the academic market is much longer than in the trade market where "popular or fad" books quickly become obsolete much like movies do.
"A review of the factors affecting textbook demand, such as university enrollments, in Canada and the United States, seems to indicate a steadily positive trend.
Other noteworthy points in the report are:
-- Although enrollments in the humanities have declined, it is supported by compulsory English courses in almost any university program; and social science enrollments appears to have stabilized.
-- Broadview's English anthologies are core to its long-term plans; anthologies face little competition, and have long shelf lives.
-- The company has been consistently profitable since 1992, though sales are seasonal. The first and second quarters typically show a loss while the third and fourth quarter results are strong as a result of university bookstores ordering books for courses beginning in September and January.
-- Broadview's capital structure is quite conservative with a negative net debt to capital as of the first quarter 2003 end.
-- Free cash flow has been positive since 2001.
-- Total unit sales have grown an average of 14.9% pa since 1988.
-- An average value of C$0.24 per share was reached (using the average intrinsic value derived from DCF and multiples valuation).
The following risks were cited in the report:
-- a sudden drop in university enrollments
-- a significant increase in secondary trading of textbooks and the proliferation of copyright violations
-- increases in operating expenses
-- a continued decline in enrollments in the humanities
-- continued strength of the Canadian dollar
The full report for the company is available at http://www.investrendresearch.com, at the company's InvestorPower page, and on Fundamental Research Corp's website at http://www.fundamentalresearchcorp.com.
Before founding Fundamental Research Corp., Tang was an analyst in the corporate banking group of one of the world's largest international banks where he performed fundamental analysis on Financial Post 500 companies (the Canadian equivalent of the Fortune 500). Prior to this, he worked at a financial advisory firm where he analyzed and published research on Canadian equity mutual funds. Brian also teaches the Canadian Securities Course (CSC). The CSC is a required course for anyone wishing to become licensed to trade stocks in Canada.
Tang holds a Bachelor's Degree in Business Administration (Finance with a minor in Economics) from Simon Fraser University. He also holds the Chartered Financial Analyst (CFA) designation. Brian is a member of the Association for Investment Management and Research and the Vancouver Society of Financial Analysts.
Broadview Press Inc. has paid a fee of $C4,280 for Institutional Coverage. The enrollment fee for the coverage of Broadview Press is being paid by the company.
Fundamental Research Corp. is an affiliate of Investrend Research and a member of the FIRST Research Consortium listed at http://www.investrend.com/articles/secondlevel.asp?level=266 , which also contains the standards and ethics agreed to by all members of the collaborative.
The Investrend Research program is the largest in the world and includes a number of safeguards to reduce or eliminate conflict. These systems, including media coverage and endorsements, may be accessed at http://www.investrendresearch.com
The Dow Jones (NYSE:DJ) Newswires have stated that independent research has been growing in credibility over the past 18 months, specifically citing Investrend Research, and the Paulson Investment Company unit of Paulson Capital Corp. (NASDAQ:PLCC) now includes a strong recommendation for independent coverage in its investment banking contracts with public companies. According to the New York Times (NYSE:NYT), a survey by Charles Schwab & Co. (NYSE:SCH) reveals an astonishing 78 percent of active stockholders now "value research from independent firms over analysis by Wall Street firms with financial ties to the companies they are rating." A survey at Investopedia reveals that 74.7% of investors say that "legitimate fee-based research is objective and useful," and 70.9% say that a company that enrolls for "legitimate fee-based research is making a positive statement about its investment potential."
Complete information about any company enrolled in an Investrend shareholder empowerment platform, including those of its affiliates and independent analysts and Webcasters, including disclosures and disclaimers, is available at the company's InvestorPower page at http://www.investrend.com/company/list.asp?sPathParam=yes , and on each report and press release, and investors are advised to read those disclosures carefully before trading in the equities of any enrolled company.
Anyone interested in receiving alerts regarding Broadview Press research should email info@investrend.com with "BDP" in the subject line.