STV Group
Written by
STV Group |
A solid start to the year |
Trading update |
Media |
26 April 2016 |
Share price performance
Business description
Next event
Analysts
STV Group is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||||||||||||||||||||
STV is on track for a good first half with growth across the board, particularly in digital and production. On a 9.5x FY16e P/E with dividend support, the share offers good value. Furthermore, the valuation of the defined pension deficits will conclude in this quarter, which should clarify STV’s cash commitments for the next three years and may pave the way for special dividends further out.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
120.4 |
17.3 |
37.6 |
8.0 |
10.6 |
2.0 |
12/15 |
116.5 |
19.1 |
38.8 |
10.0 |
10.3 |
2.5 |
12/16e |
127.0 |
20.8 |
42.1 |
12.0 |
9.5 |
3.0 |
12/17e |
134.7 |
22.8 |
45.9 |
14.0 |
8.7 |
3.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading in line; prisons recommissioned
STV has reported a good start to the year with Q2 continuing in much the same vein as Q1. Management expects total airtime sales in the first half to be up 2%
y-o-y with a strong regional performance up 23%, offsetting a flattish national performance, -1%. Digital revenues, up 25% in Q1, are expected to continue at this rate for the year ahead and production, after a difficult 2015, has had a very good start to 2016. Production has a strong pipeline – revenues secured for the year are already higher than those delivered during 2015 – in parallel, STV has announced the recommissioning by Sky of a second eight-part series of Prison: First & Last 24 hours.
Other initiatives: Pensions and regulations
Overall, this trading update is supportive of our forecasts and, while we make some changes to the mix of revenues between national and regional revenues, we make no overall change to our EBIT or EPS forecasts for the year. There are a number of initiatives, which we consider on the whole could be beneficial to STV, that could affect forecasts over the medium term. Most imminent is the triennial revaluation of its £83m pension deficit, which is expected to be completed in Q2. Later in the year, the review by the DCMS could open up the possibility of retransmission fees for public service broadcasters (PSBs), and STV is in the process of renegotiating its national airtimes sales agreement with ITV.
Valuation: Underpinned
The group is delivering on its strategy to diversify its broadcast earnings base and we believe management’s targeted CAGR in EPS for the three years to FY17 of 10% is achievable. The shares have come back since the start of the year and on an FY16e P/E of 9.5x, a 30% discount to peers, offer value. In addition, the DCMS reviews and ITV sales negotiations may provide upside to our forecasts in the longer term. Cash conversion is strong, a progressive dividend policy has been initiated and, after the conclusion of the triennial valuation of the pension deficit, the possibility of special dividends will become clearer.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Dec |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
112.1 |
120.4 |
116.5 |
127.0 |
134.7 |
EBITDA |
|
|
20.1 |
21.5 |
22.9 |
24.5 |
26.2 |
Operating Profit (before amort. and except.) |
18.0 |
19.5 |
20.3 |
22.0 |
23.7 |
||
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
(8.8) |
0.0 |
0.0 |
||
Pension finance credit/cost |
(0.9) |
0.0 |
(0.5) |
0.0 |
0.0 |
||
Operating Profit |
17.1 |
19.5 |
11.0 |
22.0 |
23.7 |
||
Net Interest |
(2.8) |
(2.2) |
(1.2) |
(1.2) |
(0.9) |
||
Profit Before Tax (norm) |
|
|
15.2 |
17.3 |
19.1 |
20.8 |
22.8 |
Profit Before Tax (FRS 3) |
|
|
14.3 |
17.3 |
9.8 |
20.8 |
22.8 |
Tax |
(2.1) |
(2.6) |
1.6 |
(4.2) |
(4.6) |
||
Profit After Tax (norm) |
13.0 |
14.7 |
15.3 |
16.7 |
18.3 |
||
Profit After Tax (FRS 3) |
12.2 |
14.7 |
11.4 |
16.7 |
18.3 |
||
Average Number of Shares Outstanding (m) |
39.1 |
39.1 |
39.4 |
39.6 |
39.8 |
||
EPS - normalised fully diluted (p) |
|
33.2 |
37.6 |
38.8 |
42.1 |
45.9 |
|
EPS - (IFRS) (p) |
|
|
31.6 |
38.7 |
29.8 |
43.3 |
47.2 |
Dividend per share (p) |
2.0 |
8.0 |
10.0 |
12.0 |
14.0 |
||
EBITDA Margin (%) |
17.9 |
17.9 |
19.7 |
19.3 |
19.5 |
||
Operating Margin (before GW and except.) (%) |
16.1 |
16.2 |
17.4 |
17.3 |
17.6 |
||
BALANCE SHEET |
|||||||
Non-Current Assets |
|
|
22.6 |
26.9 |
22.4 |
22.5 |
22.7 |
Intangible Assets |
8.6 |
9.5 |
4.5 |
4.4 |
4.3 |
||
Tangible Assets |
6.7 |
8.8 |
7.6 |
7.8 |
8.1 |
||
Other including deferred tax |
7.3 |
8.6 |
10.3 |
10.3 |
10.3 |
||
Current Assets |
|
|
47.8 |
61.2 |
55.0 |
53.0 |
54.0 |
Stocks |
17.6 |
18.3 |
19.2 |
19.2 |
19.2 |
||
Debtors |
21.4 |
23.1 |
22.1 |
23.8 |
24.8 |
||
Cash |
8.8 |
19.8 |
13.7 |
10.0 |
10.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(62.0) |
(19.7) |
(18.7) |
(18.7) |
(18.7) |
Creditors |
(17.5) |
(19.7) |
(18.7) |
(18.7) |
(18.7) |
||
Short term borrowings |
(44.5) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(0.8) |
(64.9) |
(47.8) |
(42.7) |
(36.7) |
Long term borrowings |
0.0 |
(49.2) |
(39.4) |
(34.3) |
(28.3) |
||
Retirement benefit obligation |
0.0 |
(14.9) |
(7.8) |
(7.8) |
(7.8) |
||
Other long term liabilities |
(0.8) |
(0.8) |
(0.6) |
(0.6) |
(0.6) |
||
Net Assets |
|
|
7.6 |
3.5 |
10.9 |
14.1 |
21.3 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
18.3 |
20.9 |
20.0 |
19.8 |
25.2 |
Net Interest |
(2.5) |
(1.8) |
(1.2) |
(1.2) |
(0.9) |
||
Tax |
0.0 |
0.0 |
0.0 |
(2.6) |
(3.0) |
||
Capex |
(1.4) |
(5.0) |
(2.3) |
(2.6) |
(2.7) |
||
Acquisitions/disposals |
(0.3) |
(0.3) |
(0.5) |
0.0 |
0.0 |
||
Financing |
0.0 |
0.0 |
(0.9) |
0.0 |
0.0 |
||
Dividends |
0.0 |
(1.6) |
(3.4) |
(4.2) |
(4.9) |
||
Pension deficit funding |
(4.2) |
(5.5) |
(7.8) |
(7.8) |
(7.8) |
||
Net Cash Flow |
9.9 |
6.7 |
3.9 |
1.4 |
6.0 |
||
Opening net debt/(cash) |
|
|
45.3 |
35.7 |
29.4 |
25.7 |
24.3 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.3) |
(0.4) |
(0.2) |
0.0 |
(0.0) |
||
Closing net debt/(cash) |
|
|
35.7 |
29.4 |
25.7 |
24.3 |
18.3 |
Source: STV Group and Edison Investment Research
|