One of the best times to buy a share is when everyone else has lost interest. It gives you the opportunity to buy at a discounted valuation and be in prime position to benefit once the rebound happens.

On that basis, now is the ideal time to buy shares in publisher, marketer and events play Centaur (CAU) as we’re confident that the market will regain faith once it digests the transition to higher quality earnings.

Speed bump

Chief executive Andria Vidler joined the business in November 2013. After a positive initial response to her appointment, her transformation of Centaur from an aggregate of lots of small business to a more integrated outfit hit its first big speed bump in November 2015 when an update revealed disappointing revenue growth.

Full year numbers (17 Mar) were accompanied by upbeat commentary on performance in 2016 to date but the company flagged margin pressure as a result of ongoing organic investment. Investec downgraded its margin forecast for the year from 15.9% to 15.5%. Vidler says she over-estimated the scope for retraining existing staff and has now accepted the need to bring in new skills.

The introduction of a fresh payment processing system has also affected debtor collection and means a cash conversion rate which typically exceeds 100% came in at just 31%, with year-end net debt higher than expected at £17.9 million. Finance director Mark Kerswell says the situation has been improving month-on-month since November 2015 and the company expects to return to a 100%-plus conversion rate in 2016.

These episodes have undermined sentiment towards the company and damaged the credibility of management. We’re confident
this is just a blip.

Growth: MEDIUM

Forecast single-digit growth is sold rather than spectacular.

Risk: LOW

Exposure to macro slowdown but returns to be driven by internal transformation.

Quality: MEDIUM

Typically very cash generative and shifting to higher quality
earnings streams.

Transformation plan

At 49.25p the shares now trade below the level when Vidler joined, suggesting she has made little or no progress in reinvigorating the group. This is unfair and we see scope for a re-rating from the current price-to-earnings ratio of just under nine if the company can demonstrate it is back on track. The firm is next likely to update on trading alongside its AGM on 11 May.

Shore Cap analyst Roddy Davidson says: ‘We also believe that substantial management change, rationalisation, repositioning, investment and increased new product development have left the group significantly better placed to drive medium-term growth and have increased its strategic value within a consolidating industry.’

Centaur, whose stable of brands includes Money Marketing and Platforum, operates across four divisions: Marketing, Professional, Financial Services and Home Interest.

The core of Vidler’s strategy is to transition from volatile advertising revenues to more predictable and repeatable returns from live events and paid-for-content. The latter two categories accounted for two thirds of group revenue in 2015.

The shares also have income appeal, offering a prospective yield of 6.4% based on the consensus dividend per share of 3.2p forecast for 2016. We think this payout should be sustainable as the short-term cash issues iron themselves out.

Centaur Media (CAU) 49.25p

Stop loss: 39.4p

Market value: £69.6 million

Prospective PE Dec 2016: 8.95

Prospective PE Dec 2017: 8.2

Prospective dividend yield: 6.4%

Bid/offer spread: 0.02%

Analyst price target: 86p*
*Numis, 17 Mar 2016