STV Group — Update 26 April 2016

STV Group — Update 26 April 2016

STV Group

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STV Group

A solid start to the year

Trading update

Media

26 April 2016

Price

398p

Market cap

£156m

Net debt (£m) at end December 2015

25.7

Shares in issue

39.3m

Free float

93%

Code

STVG

Primary exchange

LSE

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

(6.6)

(18.4)

9.2

Rel (local)

(8.8)

(23.3)

21.3

52-week high/low

515.00p

340.00p

Business description

STV is Scotland’s leading media brand. It holds the Channel 3 (ITV) commercial television licences for Scotland and creates and distributes programmes across all platforms, including broadcast and catch-up TV, online, mobile and connected devices.

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Interims

August 2016

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Jane Anscombe

+44 (0)20 3077 5740

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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

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Germany

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

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