STV Group AGM/Trading Update
Edison | Apr 30, 2015 06:20AM ET
In line with expectations
Stv's AGM (LONDON:STVG) trading update confirms that the year has started in line with expectations, with strong growth in digital revenues (up 33% in Q115) offsetting a slightly mixed TV advertising market. Our estimates are unchanged although we expect a slightly greater than usual weighting to the second half. STV is successfully leveraging its brand across new local and digital services, and the 2015e EV/EBITDA of 6.8x looks too low.
Quarterly fluctuations in advertising, digital strong
As expected, advertising is showing quarterly fluctuations due to the timing of Easter, 2014 FIFA World Cup comparative and the election. National advertising grew 9% in Q1 (versus expectations of 11%) but April was better than expected and the five months to May should be up 3%, leaving our forecast of a flat H1 intact. Regional advertising is affected by the moratorium on government spending around the election, with Q1 down 13% (partly due to the timing of campaigns) and down 11% for the five months to May. However, digital revenues (mainly video-on-demand) grew by 33% in Q115 and are expected to be 40% up by the end of May.
Unchanged full-year estimates
STV has reported that performance is “in line with expectations against our ambitious KPI growth targets”. However, we expect a greater than usual weighting of profits to H215 for two main reasons: (1) flattish H115 advertising revenues but additional costs post the launch of STV Edinburgh in January, and (2) lower production revenues in H115, with the bulk of deliveries expected to come in H215. Overall we expect a reduction in H1 profits (of c £1m) to be more than offset by growth in the seasonally stronger second half, leaving our full-year estimates unchanged.
Valuation: 2015e EV/EBITDA only 6.8x
After strong growth in 2013, the share price has traded in a relatively narrow 325-385p range over the past year, despite a continuing firm TV advertising market (AA/WARC expects 5.1% growth in 2015 with quarterly fluctuations), STV’s good progress in expanding its range of services and its progressive dividend policy. The 2015e EV/EBITDA of 6.8x looks too low and we see scope for the discount to ITV (LONDON:ITV) (2015e EV/EBITDA of 12.3x) to narrow, with any announcement of a new drama commission for Productions a positive catalyst given the current strong demand for entertainment content.
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