Haynes Publishing–On the road to nowhere?

Just about everybody who has ever owned a car must know what a Haynes Manual is. 

For many, they bring back memories of a misspent youth trying to squeeze another horsepower or two from an ageing Vauxhall Chevette or Mini 1000. 

With the advent of ever more complex cars, which are tuned and serviced with little more than a laptop, is Haynes Publishing anything more than a value trap?

I think the answer to that depends on the investor’s time horizon.

The company looks as if it can survive in the short and medium term.  The dividend yield is currently around 7 or 8%, and there are no obvious signs that it’s about to be cut.  This is both a handy reward for investors and an enticing lure for new investors, which may help prop up the share price and perhaps even give it a reason to go up.

The balance sheet is relatively strong, with £5m cash on hand and zero borrowings, although there is a pension deficit of some £9m or so.  More importantly, relative to some other companies that have struggled with outdated products like Game Group, Haynes doesn’t have a lot of landlords to pay rent to, so any falloff in cash flow is less likely to result in immediate problems.

By various other metrics, the company is cheap, whether it be price to book, price to earnings, or price to sales, but cheap is not enough.  A company that appears cheap today and which gradually gets cheaper until it reaches zero is not exactly a great investment.  There must be some reason for the share price to go back up again.

Although I don’t think Haynes will go to zero anytime soon, it may have a very tough time just standing still in the years ahead.  It has already branched out from car repair manuals to all sorts of other hardback books, and more recently, it has started to work on web-based content, but I still think the core business is on shaky long-term ground.

If I were looking for an investment in a buy-and-hold portfolio, I would definitely pass on this company.  The yield may be good today, but signs of growth are sadly lacking, and with the way car technology is going, as well as print media, it has a whole heap of challenges ahead.

However, in the shorter term of a year or three, that dividend will act as a strong lever on the share price if anything approaching good news happens for either the company or the economy.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

2 thoughts on “Haynes Publishing–On the road to nowhere?”

  1. Hi John,
    I read your posts from time to time and you provide some valuable insight. Like you I have come across Haynes many times as a good value investment. In fact I even thought at one point that they had an undiscovered monopoly on car manuals (particularly in the US where they are ubiquitous). However, I talked to my father in law recently who does a lot of hobby car repair and asked him if he has ever heard of Haynes manuals and of course he had. However, he said that today he no longer buys the manuals because he can find everything he needs for free on YouTube – he is 62 so this is surprising. When I heard this I completely changed my opinion of the stock. They will be hard pressed to compete with a completely free service like YouTube where audio and visual tutorials are abundant and growing. Something to think about.

    1. Hi Joshua, I totally agree. Any information-only product is in big trouble because that’s what the internet does – it distributes information and very often for free. They are moving into on-line products and so they’re going to have to do the same sort of thing that Britannica do when competing with Wikipedia and the web. They’re going to have to be higher quality in terms of ease of use, accuracy, nicer videos, better text and photos, probably using renowned ‘expert’ mechanics, or the people who designed the bits on the car, that sort of thing.

      Whether or not that will work, who knows, but the same argument can be made of any company that that sells information. Perhaps they can develop glasses that can overlay what you see with the text and images you need to change the spark plugs or change the gearbox…

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