Is it worth buying Daily Mail shares?

Following some pretty grim headlines in 2017, investors in Daily Mail owner DMGTwill be relieved to learn that the company's first update of 2018 is most likely to be covered in tomorrow's news-in-brief sections.

But even if today's first quarter trading statement is reassuring and largely unspectacular, that doesn't mean there's nothing to report for investors.

DMGT shares were recently languishing below the 600p barrier for the first time since 2013, which means there's a potentially interesting recovery story being written. Analysts at Numis Securities certainly think so, as they continue to reiterate their 'buy' recommendation and 905p target.

That's in line with their stance in November after CEO Paul Zwillenberg's admission that 2018 will be a year of transition as DMGT is adversely affected by recent B2B disposals and challenging conditions in some sectors.

Shares tanked 25% in November, but Numis said at the time there were no real surprises in the 2017 results or in the uncertain divisional outlook for this year.

They described today's latest update as "reassuring", with B2B businesses posting revenues growth of 4%, driven in part by a stronger performance at insurance risk operation RMS. The news-based division also recorded a better-than-expected 1% drop in revenues.

Numis added: "Ultimately the statement confirms confidence in achieving market expectations for the year, with divisional guidance reiterated. DMGT represents standout value at current levels." The broker bases its 'buy' recommendation on a projected 2018 price/earnings (PE) ratio of 14.6 and dividend yield of 3.8%.

Shares jumped 7% or 38p to 655p in the wake of the update.

The key here for technical analysts is the so-called 'manipulation gap' highlighted on the chart here. This occurs when shares open significantly lower following bad news, leaving no clear support or resistance levels in between.

In the case of DMGT, the shares were obviously oversold on the 30 November sell-off, and have spent the past two months 'filling the gap'. Analysts point out that once the gap has begun to close, it often completes over time. This implies that DMGT shares could reach 700p again.

However, other analysts are more cautious about DMGT's turnaround’s prospects, perhaps wary about reading too much into one quarter’s results.

Credit Suisse pointed to the favourable impact of some phasing in B2B revenues and also noting that media advertising revenues have a habit of being lumpy. The bank has a 'neutral' stance on the company with a target price of 644p.

Citi has the same view, adding: "While there appears to be no further deterioration in trends, we await a positive inflection before turning more constructive on the stock."

Under his strategic vision "Intelligent Insights. Consumer Connections", Zwillenberg believes the group is well placed to secure competitive advantages across B2B and consumer media.

DMGT has recently sharpened the focus of its portfolio by reducing its stake in media and information company Euromoney from 67% to below 50%, while also offloading Hobsons' Admissions and Solutions businesses and Elite Daily.

This has helped reduce net debt by £214 million to £464 million, with the improved financial flexibility shown in a net debt to EBITDA ratio at 1.4 times, the lowest level in over 20 years.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.