Revisiting where we are with the Telegraph Media Group: some updated thoughts

I wrote back in June (LINK) on my thoughts as to who would buy the Telegraph Media Group, how much they will pay and what it will mean. There has obviously been more news since then so I thought it might be useful to give an update on my thoughts.

Note – after seeking clarification on the subscriber numbers, there have been some edits to the original piece, especially around their impact.

1. First, when it comes to the list of reported bidders, there is nothing too surprising about the list of parties being mentioned. These include newspaper group DMGT, owner of the Daily Mail titles; National World, the listed newspaper group set up by David Montgomery, former editor of the Daily Mirror; a consortium led by Sir Paul Marshall (co-founder of Marshall Wace) consisting of wealthy individuals; Czech billionaire Daniel Kretinsky; and the former Telegraph editor Sir William Lewis. Rupert Murdoch’s News Corporation UK Is also reportedly interested primarily in The Spectator magazine rather than the whole business.

2. Three points I would make on the list of bidders. Firstly, some of the names mentioned back in June seem to have dropped out or not entered such as Axel Springer (mainly owned by Private Equity) and Belgian group Mediahuis. Secondly, most of the bidders mentioned above – including DMGT – look to be consortia and / or include wealthy financial backers with the Middle East and the United States the sources of funding. Thirdly, do not be too surprised if there are extra Private Equity backers on the list looking at the assets, although the attraction for PE may be limited given TMG is already a lean operation.    

3. One other point may be of interest. The FT reported that ex-DMGT CEO Paul Zwillenberg is advising the Marshall consortium. Personally, I am a bit surprised at that, especially as it was suggested that Zwillenberg’s appointment as DMGT CEO was helped by his close links with Lord Rothermere, owner of DMGT.

4. Second, we now have the details of TMG’s 2022 financial and operational performance. TMG reported £254.2m in revenues and £46.8m adjusted EBITDA in 2022. Based on 2021’s reported numbers of £245m and £44.1m respectively, that represents a c. 4% rise in revenues and adjusted EBITDA, with TMG saying the latter was ahead of expectations.

5. One question I would have is on the subscription figures. TMG stated total print and digital subscriptions rose 14K yoy to 734K (or 2%) but then stated total subscriptions at the end of June are 974K and it is on track to reach its 1m target in 2023 ahead of its year-end target, which seems like an extremely large leap in a few months given the slow growth in 2022 (digital subscriptions were up 42K in 2022, so there is natural print decline).

6. (NOTE: having sought clarification on this, it looks as though is from the acquisition of the Chelsea Magazine Company which is included within Other. Print and digital subscribers combined at end June 2023 were 766.8K, a proforma rise of nearly 33K from YE22).

7. What are the implications of this for the price raised. Back in June, a range of £450m – 600m was mentioned. There is nothing in the 2022 financials that would suggest a major deviation from this figure. Valuations tend to be done on forward, not backward metrics, so a key question is what are the financial expectations for 2023. If I was looking at the 2021/2022 numbers in isolation, I would suggest an expected adjusted EBITDA of £50m was reasonable. At 10x adjusted EBITDA (which I think can be taken as the base point for the valuation multiple), that would suggest a price of £500m.

8. However, the leap in subscriptions in 1H23 may suggest that number is higher given the high flow rate of digital revenues to profits. Digital subscription revenues grew 31% Year on Year to £57.9m in 2022 and TMG stated digital subscription revenues are growing 4x faster than volume growth. If that trend has continued into 2023, and given the extra growth in subscriber numbers, then it may be that revenues and adjusted EBITDA may see a large bump upwards (TMG also suggested they had been investing heavily in the product so there may have been inflated costs in 2022).

9. To give an idea of how much of an impact the extra subscribers could have, the blended Average Revenue Per Subscriber (ARPS) was £175 per year in 2022 and just over £150 at end June 2023 reflecting the acquired subscribers whose ARPS is more like £25-30. If we assume an average 2023 subscribers of 1m, at £150 ARPS, this would suggest £150m of subscription revenues in 2023 vs c. £130m in 2022. Then there is the question of what happens to non-subscription revenues but this points to low to mid-single digit revenue growth. With the extra subscription revenue, that should have a higher drop through rate suggesting adjusted EBITDA possibly more like £60m. This would mean – at 10x EBITDA – a price in the £600m range although, as a trophy asset, the price may be pushed higher.

10. As I said previously, TMG is in a good shape. 51% of revenues from subscriptions is very good, reducing the dependence on advertising. Moreover, TMG has been a pioneer at selling ancillary services – insurance, travel, wine etc – to its customer base (in recent years, the anecdotal suggestions have been that c. one-third of profits came from these extra services) which, again, is valuable, and further reduces the reliance on advertising. As I flagged previously, TMG is a trusted brand with an older but wealthier customer base.

11. However, outside going down the New York Times route of monetising sub-sections such as recipes and crosswords, I think a big opportunity for TMG is in the United States, and particularly ahead of the 2024 US Presidential and Congressional elections. The US has plenty of publications regarding as liberal leaning (the NYT, Washington Post etc) but hardly any that appeal to conservative voters, except for the mainly business The Wall Street Journal. Mail Online has moved into this space to some degree but its celebrity focus has meant it is targeting a different audience.

12. There could be a major opportunity here – with the right plans – for TMG to capture this segment of the market which is underserved from a publication standpoint. Given the reputation of both The Telegraph and The Spectator in the UK, it is not hard to see how that brand could translate into a US market which will be particularly keen for a conservative point of view heading into the 2024 elections. This could be a major opportunity from a subscription standpoint.

13. What about the question of who will buy? Most of the parties mentioned in the first paragraph are likely to have the necessary financial resources. One question might be whether TMG will be split with separate buyers for The Telegraph and The Spectator, and I can see that as having a significant chance. It would probably maximise the value, especially if Rupert Murdoch’s interest in The Spectator is correct.

14. I still think DMGT Is the most likely winner although the race is probably close. I still think DMGT holds the cards for several reasons (its market knowledge, the synergies etc) and I also do not see the regulatory issues as being insurmountable – the Competition and Markets Authority wanting to be more forward thinking as opposed to outdated (like the blocking of regional newspaper mergers a decade ago).

15. In conclusion, I think DMGT is the most likely buyer and a price of £500m-600m the likely range. However, I would not like to put money on either of those conclusions.

As usual, this is not investment advice.