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We have reduced our financial forecasts to reflect the cautious tone of STV’s H1 trading update but remain positive on its underlying strengths and growth strategy. Our revised target price of 222p suggest >50% upside potential and we see strong strategic value in the group’s Studios business. We therefore view yesterday’s 26% share price fall as a long-term buying opportunity.
STV Group plc
A recent severe deterioration in both advertising and commissioning markets in the UK leads us to reduce our near-term estimates materially, following an unscheduled trading update from the group. Timing is clearly disappointing coming after the strategy update on 21 May, but the group strategy and key financial targets for 2030 are unchanged.
STV has announced a trading update signalling a short-term loss of momentum in both Audience and Studios units and that its full year expectations are now materially below consensus. The Company has offset some pressure with immediate cost reductions and will guide on more in September. In response we reduce our 2025 and 2026 DEPS by 44% and 36% respectively. At this stage we do not adjust our capital allocation assumptions and hold our DPS estimates while waiting for clarity on, costs and business activity guidance which will help us forecast and then assess leverage. Looking further out we would expect to see the commissioning market pick up again and the successful Studios business to gain the benefit as well as the expanded World Cup to provide a lift to advertising in 2026. The shares are likely to feel immediate significant pressure. We look beyond this to a recovery based on FY27e for our valuation and leave our Buy rating intact based on this.
STV Group+ (STVG, House Stock at 191p) - Market deterioration
The Government has released its 80-page Creative Industries Sector Plan covering the period to 2035. The plan includes a lot of words and not a lot of new money, but it does also confirm some existing tax credits will be maintained and R&D relief clarified. It arguably adds continuity in several important areas and does at least suggest the Government recognises what’s important. Policy to develop the creative industries further outside London looks healthy given there is already critical mass in London. Complementary lower cost services outside of London will enhance UK competitiveness, scale the industry in the UK and deepen the skills base. We note the indication of potentially adopting a more practical domestic competition policy that could make it much easier to build businesses that could be successful on a global scale in the vast and expanding DTC video entertainment market (broadcasting, streaming, social, etc). We believe the current copyright regime is largely fit for purpose but do think the academic/commercial use boundary for AI training data needs to be tightened and practical enforcement improved. The government must get this right or it will impact growth and destroy IP value. The policy does not reference the 2% Digital Services Tax, but we think the government could boost the tax take and available funding for the sector by reforming the tax to more aggressively target multi-national profit-shifting. It’s not hard to see how much extra tax can be raised if a higher rate is assumed and the revenue definition adjusted. For example, Google UK Limited declares <£3bn of turnover vs a CMA estimate of £10-20bn. Raising the revenue threshold would take incorrectly caught domestic champion AutoTrader out of the DST net.
STVG DEVO EVPL SAA NFG
We have spoken to a broad range of investors following our recent initiation on STV Group. In this note we summarise the principal areas of debate arising from these discussions and highlight an encouraging reaction to our positive investment case and the company’s recent strategy refresh. Specifically, we believe that a growing understanding of its underlying qualities and growth potential creates scope for STV’s share price to re-rate from an extremely modest valuation. We retain our 268p target price and BUY recommendation.
STV has announced a new long-term plan with clear goals set for the two divisions. This helps provide strategic clarity for investors following the arrival of new CEO Rufus Radcliffe and takes the business through to the end of the pension deficit payments schedule when cash generation steps up. The linear Broadcast and VOD-focused Digital businesses will now be combined under the Audience title and supplemented with a Radio channel that further leverages STV’s incredibly strong position in the Scottish market. The content production Studios operation is being grown further following its development into a genuinely commercial scale operation over the last few years. Overall, the strategy is one focused on evolution and not revolution helping reduce execution risk. In this note we adjust our explicit forecast to reflect the trading update and start of the plan period and lay out our thoughts on the likely shape of the financial development of STV and the implications for value creation. We see a path to a valuation of between 493p to 832p based on execution of our model assumptions. We nudge up our short-term 12-month TP to 251p reflecting our focus on FY26e and reiterate our 12-month Buy rating, while flagging the very near-term macro uncertainty.
STV Group hosted a CMD on 20 May updating on strategy under new CEO Rufus Radcliffe. A clear path to long-term growth was laid out, in our view, including the launch of a new radio station, new reach and targeting propositions in broadcast, and further strong growth for the successful Studios business. STV targets EBITA of £30-35m in 2030 versus £18.5m now forecast for this year (CAGR of 10%-14% pa) with an additional £10m pa uplift in FCF when pension deficit payments cease in October 2030.
STV Group+ (STVG, House Stock at 163p) - 2030 vision: ambition, underpinned by sound assumptions
2024 revenues were ahead of expectations boosted by Studios continuing to scale while group profit was essentially in-line. This was achieved against the backdrop of a volatile Q4 ad market. Looking forward, Studios should continue to grow whilst ad guidance looks suitably macro-risk adjusted and not a surprise after the ITV update. Estimates fall but profit outlook is essentially stable. This is ahead of the new CEO strategy refresh (evolution rather than revolution) that is likely to see a focus on exploiting the STV Player platform further and support the scaling of the Studios operation. The shares have already moved to factor in the Trump uncertainty, and we adjust our TP based on these near-term prospects. Our focus now shifts to the strategy update and the further development of STV.
STV continues to deliver resilient profits through tough near-term markets, at the same time as shifting strategically towards the growth markets of content production and streaming. We cut FY25E/26E forecasts to reflect the ongoing absence of UK economic upside (as well as a higher NI burden) but we continue to see a good growth trajectory for the group beyond the four-year sports-cycle low year of FY25E. CEO Rufus Radcliffe plans a strategy refresh in May focused on what STV should look like by 2030: we see a growing business with strong cash generation and minimal pension overhang.
STV Group+ (STVG, House Stock at 179p) - FY24 in line; resilience against a tough macro backdrop
STV has struck a multi-year revenue share-based deal to carry the Premier Sports subscription-based service. In addition to leveraging the STV Player platform investment it is expected to attract a younger male demographic enhancing the advertising proposition of the platform and also build the audience outside Scotland. We expect that STV will do additional similar deals to leverage the platform further. Consumers will get the benefit of the STV Player+ subscription service being included for free.
STV has announced an innovative partnership with Premier Sports. The two will offer STV Player+ (the ad-free subscription streaming service) bundled with the Premier Sports subscription package, for those signing up via STV Player. The deal should help STV attract new audience demographics (younger and male). We make no changes to forecasts, but this feels like a positive and productive partnership for mutual benefit. We look forward to the FY24 results on 11 March.
STV Group+ (STVG, House Stock at 198p) - Broadening the STV Player audience
STV had a better-than-expected Q3 TAR performance (+5% vs low single digit guidance). Studios is also bucking the industry trend. Looking forward Q4 TAR is guided very cautiously (-10% pre-commission) due to the RWC-boosted tough comp suggesting H2 will below PLe advertising estimate. However, with Studios ahead and cost savings also looking strong the Company has been able to indicate it is trading in line with expectations. This should provide some relief after ITVs recent soft statement, particularly given the health of the Studios orderbook heading into 2025. With overall revenue and profit looking to be in-line with PL estimates we make no changes at this stage and will look to the year-end update to finesses our numbers.
A trading update from STV points to unchanged group estimates despite tough markets in both advertising and commissioning that have continued into Q4. We see this as a benefit of the ongoing group strategy, with the steady shift away from broadcasting towards programme production and streaming delivering a resilient overall group outcome for 2024.
STV Group+ (STVG, House Stock at 194p) - Trading update - Still delivering
STV has reached agreement with pension trustees on its latest triennial valuation and funding plan, including a near halving in the actuarial deficit position, a slight reduction in cash payments and a maintained expectation of full funding by October 2030. As noted by STV, this provides the group with additional flexibility ‘across the full spectrum of capital allocation’.
The Company has announced that it has concluded the December 2023 triennial valuation and agreed terms with the trustees. Essentially the core payment is in-line with existing PLe (£10.1m in 2025 vs PLe £10.1m) and admin cost down to just £0.1m (£0.3m previously). The improvement in the deficit also means that the Company has been able to agree the contingent cash contribution mechanism be paused till at least 2028 (last paid in 2022). This announcement should address the markets concern about the risk of a significant rise in payments and help the share price get back to outperforming. STV is a quality play on the huge video market through its exposure to both content production and monetisation via VOD and linear. We expect further strong growth in Studios along with the Digital operations to help continue scaling and diversifying the business further and drive earnings. We rate the stock Buy with a TP of 382p.
STV Group+ (STVG, House Stock at 244p) - Pension funding agreement
STV Group+ (STVG, House Stock at 260p) - Strong H1 Performance
A strong first half, helped by the continuing expansion of the Studios business (even in a tough commissioning climate) and improved advertising aided by Euro 2024. Recent acquisitions in Studios are contributing well and the group reiterates its stretching FY26 financial targets. STV looks well positioned for the incoming CEO to continue its strategic transformation from broadcaster towards streaming and content.
H1 revenues were ahead of expectations with Studios activity the big surprise set against tough industry conditions. While the Company is not seeing an industry wide pick up in content demand its strategy is delivering commissions and lifted the forward order book to over £100m for the first time. H2 advertising looks to be in-line with PLe at this stage supporting us holding our DEPS estimates. The strength of the strategy has diversified the business and added resilience. A new CEO has been announced ensuring an orderly handover. The shares have outperformed over the last year and the H1 beat helps de-risk H2. This provides more solid ground for the strategy to deliver the 3-year 20% DEPS CAGR we forecast. Target Price edges up to 382p. Buy.
STV Group+ (STVG, House Stock at 269p) - Interim results preview
Despite a continuing tough market for new programme commissioning, STV has announced several further new wins, ranging from a second series of major drama Criminal Record for Apple TV+ to new competition format Game of Wool for More4. We make no changes to forecasts at this point, but see further underpinning for STV’s ambitious target of £140m of revenues from Studios by 2026. We look forward to a more detailed update with interim results due on 3 September.
The Company has announced a further five valuable series commissions across four brands. We estimate they are worth over £25m in total. Four are recommissions highlighting that repeatable series are delivering in a tough environment. This also builds on the five commissions, including two high value series, announced in July. We estimated they were worth within a range of £10-£15m in total. Taking all of this into account and existing commissions we think Studios now has visibility of c£85m for 2025 and 2026. STV has announced a string of high-quality commercial commissions in a production sector which is still getting back on its feet. We think this reflects the underlying quality of the Studios business that has been created. Increasingly 2024 looks likely to be just a blip driven by extreme external factors for Studios and the £140m 2026 revenue/10% margin targets appear very executable providing some underpinning for 2026 estimates. The stock trades on just 5.6x 2026 EV/EBIT. Buy.
STV Group+ (STVG, House Stock at 259p) - Studios powering ahead
STV has provided an update on recent commissioning activity. It has won five commissions, including two high value series. We estimate they are worth within a range of £10-£15m in total and add to the visibility that has been building for 2025 and 2026. While 2024 production market activity has been poor due to the disruption of the strikes and weak macro/ad market in 2023 the ad market now looks solid, and we expect the commissioning market to pick up.
Interim results from STV are confirmed for 3 September. Ahead of this, the group has released a timely update highlighting further new wins and recommissions for its Studios division, adding to major commissions already secured earlier in the year. Separately, ITV interims out this morning confirm a much-improved advertising picture around the recent men’s Euro football event.
STV Group+ (STVG, House Stock at 268p) - Summer production commisions
STV provided a trading update on 5 June, noting stronger-than-expected advertising in Q2 helped by Euro football, a continuing strong order book for Studios and confirmation of supportive new media legislation. Given UK election uncertainty near term, we make no material changes to overall numbers at this point, but see clear encouragement in the update.
STV Group+ (STVG, House Stock at 286p) - Site visit underlines positives
STV Group+ (STVG, House Stock at 283p) - Strong H1 advertising revenues
In our May STV note we flagged the read across from the ITV trading update. STV’s update is even stronger with 12% underlying growth guidance for H1 TAR vs ITV H1 guidance of +8%. Within the mix Regional and National have significantly outperformed with the Euros and a better advertising market the key drivers. The content market has continued to be soft. This leads us to upgrade our H1 advertising expectations and reduce our 2024 Studios forecasts. Our 2024 EPS is unchanged, but we do lift our 2025 by 7.3% and 2026 by 5.8% as advertising upgrades are not offset by Studios reductions. A continuation of improvement in the advertising market would drive further material upgrades due to high operational gearing. TP rises to 370p and we reiterate our Buy rating. H1 Total Advertising Revenue (TAR): In total underlying TAR growth (ex VOD commission) is expected to be up 12% with National +15%, Regional +2% and VOD +10%. This compares with PG H1 assumptions of +3% for National, -5% for Regional and a total Digital expectation of +3% respectively (VOD is c70% of Digital). Including the VOD commission impact we estimate 9% growth in H1 reported TAR. Q1 and Q2 TAR growth are guided to be +5% and +20% respectively. Q2 is reflecting the Euro2024 championships as well as the better advertising market. Studios: The Company has signaled that it has a contract value of £86m vs £87m in March when it issued its results. This reflects net deliveries of £12m so far and £11m of wins. In addition to a sluggish production market two commissions (The Witness for Netflix and Amadeus for Sky) will be recognised in 2025 leading us to reduce our 2024 expectations. This does however imply better visibility for 2025 and in addition to the scope for recovery (a pick-up in advertising tends to ultimately boost production commissions albeit with a lag) lifts our confidence in 2025 and 2026. Cost savings program: The Company has confirmed that its £5m costs saving program is on track for achieving the run rate in 2026 and that it expects to deliver £1.5m in 2024. 2025 and 2026 EPS estimates increased: We adjust our advertising estimates to match guidance/implied growth rates for H1’24 (National +15%, Regional +2% and Digital -3%) and slightly soften our H1’25 (from +2% to flat) to offset part of the strength of Euro football spend. We lift our TAR estimates from flat to +4% for 2024. Our H2 assumptions are unchanged at this stage leaving some scope to revise up if market conditions continue to strengthen. We do reduce our 2024 Studios estimates to reflect the above factors, but essentially sustain our 2025 and 2026 expectation profiles. 2024 EPS is unchanged while 2025 rises 7.3% and 2025 by 5.8%. See overleaf for a summary of forecast changes. Valuation: We lift our Target price to 370p from 334p driven by the upgrade to 2025e. Our 12-month target price is based on a 10x 2025 EV/EBIT multiple.
STV Studios continues to be busy, announcing significant recommissions within its auction content franchise. Separately, ITV reported an improving ad trend for 2024 (+3% Q1, +11% Q2) in a trading update. STV has not updated the market on FY24 trading since prelims on 4 March, but a site visit for investors scheduled for 5 June could provide a natural opportunity for the company to do so.
ITV has indicated a healthy start for Total Advertising Revenue (TAR) with Q1 revenue growth of 3%. Guidance for Q2, boosted by the Euros in June, is for 12% growth resulting in H1 guidance of 8%. While not a perfect indicator for STV it implies our H1 +4% TAR growth assumption is light. This provides some significant comfort for STV estimates (broadly £2-3m of profit subject to mix vs FY24 PGe EBIT of £20.3m) given the markets macro concerns and the softness in the production market. If advertising continues to be firm in the TV/Video market, then production may also see a pick-up sooner rather than later. The data from ITV also corroborates the positive yield data in the April online market we have been flagging and the positive update from Reach. This is arguably creating the most optimistic backdrop for B2C media since early 2022 and could well boost valuations within the subsector. We note Future has results next Thursday. ITV: Q1 TAR rose 3% in-line with previous guidance. Q2 TAR guidance has been set at 12%. This will include some of the benefit of the UEFA EURO 2023 Championship. This will also boost July/Q3 which does not provide guidance on. Total H1 TAR growth guidance is +8%. We have a 4% growth assumption for STV TAR in both H1 (and H2). STV Studios: STV announced three series of commissions for a total of 56 episodes yesterday. They include Antiques Road Trip (20x45’), Celebrity Antiques Road Trip (16x45’) and The Travelling Auctioneers (20 episodes). We estimate the gross value at between £5-10m. These were included in the £87m contract value update in March at the final results stage. Estimates: We stop short of lifting our STV estimates at this stage, but flag the comfort provided by the ITV update. Valuation: The shares have been performing well (+27% YTD), but there is still significant upside to our 12-month Target Price which is based on 10x 2025e EV/EBIT.
STV Group+ (STVG, House Stock at 235p) - Recent news extends positive momentum
A first commission for Netflix and a material extension of an existing commission for Warner Bros. Discovery highlight continuing strong momentum in 2024 for STV’s Studios division. As well as underpinning current estimates, they point to a continuing broadening out of the client base and scope of work at STV Studios, as the group continues its long-term migration from a traditional broadcaster to a digital streaming and content provider.
STV has won another major commission, The Witness, and a 40-episode commission for the Auction House brand. The former is STV Studios first commission for Netflix and follows the high-profile 8-part Criminal Record drama series produced for Apple+. The latter is for Discovery and demonstrates the ability to gain re-commissions and extend existing franchises. STV is proving that it cannot only repeatedly secure quality scale commissions in the domestic market, but also for the high-profile global platforms. We expect these wins will raise the profile of STV Studios further and act as a stimulant for more business. This supports the new 3-year strategy which aims to double the size of the business whilst lifting the margin. Another high-profile global market commission: The Witness commission is for a 3-60’ drama series. Shooting will commence in the summer, and we expect it to be delivered in 2025. This is STV Studios first commission for Netflix. This comes on the back of the recent announcement re the £55m 3-commissions won by the Two Cities Television label for Amadeus (Sky) and Blue Lights (a 3rd and 4th series for BBC1). Auction House Franchise commissions: In a separate announcement the Company has confirmed 40 episodes (equating to 40 hours) for the Discovery “Really Channel” of which the majority are expected to be delivered in 2024. These include a 23x60’ 5th series for The Yorkshire Auction House, a 7x60’ 4th series of The Celebrity Yorkshire Auction House and a 10x60’ series of the new The Derbyshire Auction House. Estimates: We do not make any adjustments to our forecasts for this announcement. We see these commissions as helping fill up the visibility over the 3-year plan period. In the recent results the Company confirmed it had c£87m of contracts. The 3-year plan: In our recent results note (Strategy proves itself in tough conditions) we covered the new 3-year plan. Studios has substantial scope for growth and Studios makes a material contribution to the 17% 3-year earnings CAGR we forecast. The Company is targeting more than doubling revenues to £140m and achieving a 10% margin in 2026 (2023A: £66.8m revenue and 7.8% margin).
STV’s results for 2023 showed just how tough the advertising market was in 2023 as macro and geo-political forces combined to create an enormous headwind. The bigger takeaway however was the strategic success building the growth orientated Studios and Digital businesses (now 61% of group EBIT) which offset half of the Broadcast profit decline. A new 3-year plan, with a 17% DEPS CAGR, provides the framework for more development of the Digital and Studios businesses while Broadcast should see stability. CEO Simon Pitts has noted his intention to stand down, but he will be around long enough to get another solid plan up and running. Key results: Total revenues rose 22% to £168.4m vs PGe £167.1m. The EBIT impact from high margin advertising reduction was contained to 22% (£20.1m vs PGe £20.0m) through cost actions and the offset from the fast growing Digital and Studios businesses (both beat our profit expectations). Net debt was also better and the dividend was maintained at 11.3p. The pension deficit fell from £63.1m to £54.8m. Trading outlook: The Company guides to TAR (Total Advertising Revenue) to be up 5% in Q1 (pre-VOD commission). Within the mix VOD is guided up 12% (pre-commission) for the period, Regional advertising down 4% (Scottish Government spend down) and National +3%. The forward order book for Studios is £87m, up £34m YOY. New 3-year plan: The Company has set out a new 3-year plan which seeks to accelerate Studios growth domestically and internationally, drive streaming growth and wider STV audience, grow new revenues and modernise/simplify the business for a digital first world. The Company has set a number of financial targets and identified a number of costs savings/efficiencies. We cover the plan and forecasts in this note. Forecasts: We have adjusted our model to take account of the current trading trends and 3-year plan. The new plan generates an estimated 3-year DEPS CAGR of 17%. We forecast the Digital & Studios businesses to grow from 61% of group EBIT (pre corporate overhead) to 69% over the plan period. Valuation: With Digital and Studios, both high multiple businesses, now making up 61% of EBIT and this set to advance we are comfortable with our 10x EV/EBIT target multiple for the group. Based on this we see values of 334p and 491p for 2025 and 2026. We lift our 12-month TP to 334p and reiterate our Buy rating.
Operating profit of £20.1m for FY23 is in line with expectations set in November. Forecasts change only minimally, and a firmer recent tone to Q1 advertising is encouraging. After delivering on FY21-FY23 targets for Digital and Studios, STV has set new targets implying potential OP of c.£25m by end-FY26E from these growth activities alone (excluding Broadcast) – underlining the continuing evolution and growth potential of the company.
Initial Equity Trading Comments - 5 March 2024
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STV’s results for 2023 show just how tough the advertising market was as macro and geo-political forces combined to create an enormous headwind. The diversification strategy has clearly helped. Strategic progress in Studios and Digital helped offset roughly half of the Broadcast profit decline. A new 3-year plan builds on the success to date and provides the framework for more development of the Digital and Studios businesses. Broadcast should see relative stability this year. We will look to revise our estimates once we have reviewed the new plan in detail. CEO Simon Pitts has notified the board of his intention to stand down over the next 12 months which should allow for an orderly transition. He will ultimately hand the business over to a new CEO and leave the business considerably better positioned and with key experienced management in place to continue the development work. Key results: Total revenues rose 22% to £168.4m vs PGe £167.1m. The EBIT impact from high margin advertising was contained to 22% (£20.1m vs PGe £20.0m) through cost actions and the offset from the fast growing Digital and Studios businesses. Digital and Studios beat our profit expectations reflecting the momentum of these businesses. Net debt was slightly better than expected and the dividend was maintained at 11.3p. The pension deficit also fell from £63.1m to £54.8m. Trading outlook: The Company guides to TAR (Total Advertising Revenue) to be up 5% in Q1. Within the mix VOD is guided up 12% for the period, Regional advertising down 4% (Scottish Government spend down) and National +3%. The forward order book for Studios is £87m helping provide some visibility for the next few years. New 3-year plan: The Company has set out a new 3-year plan which seeks to accelerate Studios growth domestically and internationally, drive streaming growth and the overall STV audience, grow new revenues and modernise/simplify the business for a digital first world. The Company has set a number of financial targets and identified a number of costs savings/efficiencies. This is another ambitious and credible plan that seeks to take the lead rather than let conditions dictate the outturn for STV. Forecasts: We will look to review our forecasts to reflect the current trading trends (we note Broadcast revenues looks to be in-line with PGe) and new 3-year plan once we have reviewed the latter.
STV+ (STVG, House Stock at 194p) - FY23A results, new growth targets and CEO change
STV Group+ (STVG, House Stock at 197p) - New content commisions
The Great Correction of 2022 saw the share prices of streamers plunge after market leader Netflix reported a slowdown/fall in subscriber growth. Having formerly been seduced by hectic subscriber growth rates, investors quickly refocused, this time on fundamental metrics such as revenue, margins, profits and cashflow. Since then, streamers have continued to take a steadily greater share of viewing while linear TV continues to decline. But growth in streaming subscribers in the US and UK is now a fraction of what it was, reflecting pressure on consumer incomes and intensified competition in content. The slowdown in growth of subscribers has led to a revision of business models. Netflix is broadening its offer to subscribers by investing in areas such as sport, gaming and gambling, aiming to become an entertainment hub. The business is scalable, with pricing power, so margins are rising. Disney has dealt with management issues and with attempts by outside investors to gain a seat on the board. Based on its enormous content assets, it is set to move into profit on its streaming offering this year and, like Netflix, it will be an entertainment hub. Streamers see advertising as an attractive source of revenue and are offering advertising-supported tiers at low prices. If their content delivers audiences that advertisers want, streamers will have a slice of high-margin revenue. Plus, streamers view the lower prices as a way of reeling in new subscribers, rather than encouraging trading down. In the UK, competition for viewers is intense with the US-based streamers up against the Public Service Broadcasters. ITV and STV have adopted three-legged strategies: linear broadcasting, programme making and streaming, but, currently, they are still too dependent on linear advertising revenue for investors’ liking. Streaming is now a global business. Netflix identifies 700m connected TVs worldwide and compares this with its subscriber numbers of 260m. Even in the domestic US market, streaming accounts for only 10% of TV time, so plenty of growth to go for. In the US, loss-making streamers (Warner Brothers Discovery, Paramount) are considering merging. Outside of Netflix, only Disney looks like making profits from streaming, but Amazon Prime may be on the path to profit too, in view of its strong growth in subscribers. Streaming is a disruptive, content-led, subscription-based technology. Challenging all video distribution business models, it opens up global opportunities for a growing variety of content, including gaming and sport. Successful use of content to engage and retain subscribers in a scalable business will lead to strong profit growth. The old saying that “content is king” has never been truer.
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STV is lifting its investment in Two Cities Television (TCT) to 51% from 25%. This reflects the successful development of the business and STV choosing to lock in the substantial value creation by virtue of the agreed deal structures. More widely this is a reflection of the strategy to back select proven executives with small investments to develop and expand the Studios business. The production sector has seen some cyclical and industry specific issues (the dual actors and writers strikes) impacting, and it is a welcome support for our forecasts at this early stage of the year that TCT has secured a substantial 3-year £55m book of business. The expansion of the Studios operation and focus on highly commercial returning series has altered visibility and quality for the business. We look forward to an update on the wider production business at the full year results stage. Two Cities Television (TCT) is an excellent example of the strategy working well. STV has essentially funded a number of proven executives by taking small stakes in early-stage businesses with rights to increase as they execute (profitability achieved). Today’s increase in the ownership of TCT helps lock in some of that value creation. STV is backing 24 labels, and we expect to see more evolve to become successful businesses. Returning business continues to build: Building out further the high-end scripted business and unscripted activities along with the Greenbird acquisition has led to STV now having nearly 40 returning series, which raises probability of re-commissions. TCT Outlook: Currently, Two Cities has three additional high-end drama series greenlit by broadcasters which will deliver forecast revenue of £55m over the next three years (2024 to 2026). This builds on the high-profile success of Blue Lights, a two series run for the BBC1 that has generated critical acclaim.
STV Group+ (STVG, House Stock at 189p) - Content production investment
STV has today announced an increased investment in Two Cities, a leading drama producer into which the group invested in January 2020 (just prior to the Covid outbreak). Two Cities is performing well, with a strong pipeline of series already approved and a £55m secured revenue base over the coming three years. We see this commitment by STV as further proof of the strong and long-lasting growth in the Studios business as a whole. Relatively low-risk (small) investments have been made in a number of areas, and this follow-on deal suggests that the strategy is delivering well.
News that economic pressures are impacting on STV’s trading is perhaps not surprising; we reduce estimates in line with updated guidance. The update underlines the value of STV’s ongoing diversification across Digital and Studios, with continued strategic progress in these areas. The group financial position remains sound, valuation remains modest even on lower estimates, and we continue to expect a return to good overall growth, driven by Digital and Studios, once the UK economy stabilises.
Q4 linear advertising has deteriorated, and visibility is poor leading to lowered guidance in a period that already had a tough comparative boosted by the World Cup. Studios has been impacted by a sluggish commissioning market, some production timing changes and some delivery date alterations, but the overall performance still reflects the critical huge step change in the scale of revenue and operating profit (2023 PGe revenue +174% and EBIT +264%). The high operational gearing of advertising drives the majority of the 20% 2023 and 26% 2024 EPS downgrades. The announcement is bittersweet with downgrades souring the strong execution on scaling Studios and growing the Digital business. STV is hardly alone in feeling the cold macro wind so this announcement may in time be seen as a cyclical bump. Valuation and yield remain attractive.
STV Group+ (STVG, House Stock at 191p) - Trading update flags tougher conditions
STV Group+ (STVG, House Stock at 181p) - Anomalous share price weakness
Investing for Income - Ideas for income investors
STV Group+ (STVG, House Stock at 197p) - Interims underline upside potential
STV’s H1 results confirm a picture of continuing uncertainty in the UK economy and advertising markets (albeit Q3 should be positive due to sporting events), driving a reduction of 8%-9% to FY EPS estimates. As market leader though, STV is very well placed to benefit when the ad market recovers, with every 1% of advertising uplift having a material positive impact on EPS. STV also continues to make vigorous progress in its diversification strategy. Growth in both Digital and Studios businesses (forecasts unchanged, now 69% of profits) should also drive future growth for the group.
STV Group+ (STVG, House Stock at 194p) - Interim results reflect successful diversification
H1 revenues (+21% to £75m) were ahead of PG expectations (£67m) with Studios storming ahead and more than offsetting the soft advertising market. EBIT was behind due to the lower advertising revenues (which are high margin) and cost timing in Studios profit. We do however still expect over £6m for full year Studios profit limiting the impact on our full year EBIT estimate to 5.7%. Our H2 advertising assumptions look cautious given the Q3 update, and we hold these estimates. The Greenbird acquisition is trading well (seven commission wins since acquisition) adding to H2 support and the full year effect on 2024 forecasts. On strategy STV is on track to exceed its profit diversification target (over 60% vs 50%), more than double Digital revenues and more than quadruple Studios revenues (over £50m vs £40m target). The macro environment is tough, but STV is executing on the strategy that is improving the groups long term growth potential and profit diversification.
Shore Capital Media and Digital News Summary
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STV Group (STVG) - House Stock at 298p - Interim results preview
Initial Equity Trading Comments - 29 August 2023
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STV Group+ (STVG, House Stock at 204p) - Recent weakness, deep value
STV is broadly doubling the size of its Studios division with the acquisition of production business Greenbird Media for c.£24m. Strategically this looks transformative for STV Studios, and further diversifies the group outside of Broadcast. We conservatively estimate 5% EPS accretion, and financial ratios remain very comfortable even with the higher debt.
STV has been on a path to diversify its earnings by expanding its Digital (principally STV Player) and Studios (Content) businesses. We had already forecast (PGe 57%) STV to beat its 50% 2023 non-broadcast profit target due to the Studios business materially outperforming. The Company is following this success by acquiring Greenbird, which has a portfolio of 15 production labels at different stages of development. We forecast the acquisition to be immediately earnings enhancing (PG 2023e DEPS +5.4%) and expect this will also lift the quality of earnings for the group and Studios business as breadth and depth increases.
STV Group (STVG) - House Stock at 230p - Transformational acquisition
STV Group+ (STVG, House Stock at 246p) - Production momentum continues
Media sector comment - Advertising spend expectations - Five core stock picks
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STV Group+ (STVG, House Stock, 252p) - Positive board level initiatives
Several recent announcements highlight that STV is continuing to execute its diversification strategy effectively, even in a tough economy. We summarise the developments in this report, consider further possible newsflow to come from STV and recap the investment case. At 249p, current valuation is 7.3x EPS / 4.5% dividend yield (FY23E).
STV Group (STVG) - House Stock at 250p - Positive news continues
STV has launched its STV Player app on to the key Sky Q platform (it is already on Virgin). This will radically change the prominence of the STV Player, helping raise awareness of the player and the content. Usage will almost certainly benefit which is ultimately the driver of revenues. Coupled with the new ITV sales deal, that is improving player media yields, supports the growth of the Digital business. In addition to the app news STV has announced a re-commission of drama Blue Lights (6x60’ series) for the BBC. This will add to the substantial Studios backlog and underscore our expectation of a more than doubling of revenues this year driving the scaling of the unit. The focus on repeatable series is undeniably paying off.
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Any reference to a partner in relation to Hybridan LLP is to a member of Hybridan LLP or an employee with equivalent standing and qualifications. A list of the members of Hybridan LLP is available for inspection at the registered office, 2 Jardine House, The Harrovian Business Village, Bessborough Road, Harrow, Middlesex HA1 3EX. *A corporate client of Hybridan LLP ** Arranged by most recent first *** Alphabetically arranged Dish of the day Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen?** Fadel Partners, a developer of cloud based brand compliance and rights and royalty management software, working with some of the world's leading licensors and licensees across media, entertainment, publishing, consumer brands and hi-tech/gaming companies intends to join the AIM market. FADEL has two solutions, being IPM Suite (rights and royalty management for publishers and licensing) and Brand Vision (an integrated platform for Brand Compliance & Monitoring that includes Content Services, Digital Rights Management, AI-Powered Content Tracking, a Brand Monitor, and 100 million Ready-to-License Images). Expected Admission date is late March 2023. Onward Opportunities Limited intends to join the AIM market. The Company's investment objective is to generate returns for Shareholders through investments in equity and equity-related instruments of UK smaller companies that are predominantly listed or admitted to trading on markets operated by the London Stock Exchange. Expected Admission date is mid-March 2023. Essentially Group plc, its strategy is the acquisition, holding and development of companies active in the health food and beverages market, intends to join the AQSE Growth Market. On 1 September 2022, Essentially Group UK acquired Essentially Holdings Ltd (and its wholly owned subsidiary, Essentially Juices Manufacturing LLC (EJM)), EJM is active in the UAE and Kingdom of Saudi Arabia fruit and vegetable juice market. Expected Admission date 17th March 2023. MBH Corporation plc, an investment holding company with subsidiaries in multiple industries including the construction, education, leisure, healthcare, food & beverage, property, engineering and transport sectors, intends to join the AQSE Growth Market. MBH is currently traded on the Dusseldorf and Frankfurt Stock Exchange. Expected Admission date 13th March 2023. PanGenomic Health Inc, currently traded on the Canadian Securities Exchange market intends to dual list on the AQSE Growth Market, as a springboard to expand footprint of its personalised and self-care digital health platforms in the UK/EU markets. The Company has three platforms: Nara App, Mindleap.com and the PlantGx Platform. PanGenomic Health Inc is currently traded on the CSE. 88.6% of the total issued shares will be floated. Admission is delayed. Our daily digest of news from UK listed Small and Mid caps Banquet Buffet*** Blue Star Capital 0.18p £9m (BLU.L) The investing company with a focus on esports, technology and its applications within media and gaming, announces its final results for the year ended 30 September 2022. The Company's Net Asset Value decreased by 10% to £11.41m (2021: £12.72m) with the Company incurring a pre-tax loss of £1.3m (2021: profit £2.13m). The decline in NAV and loss for the year principally reflected the write down of four esports investments and the loss incurred on some of the Company's quoted investments. The current value of the quoted investments held by the Company is approximately £147k. Calnex Solutions 120p £105m (CLX.L) The provider of test and measurement solutions for the global telecommunications sector, provides a trading update for the financial year ending 31 March 2023 (FY23) and the outlook for the following year to 31 March 2024 (FY24). The Company entered the second half of FY23 with a strong order book and successful conversion and delivery has led to the anticipated improved performance in H2. FY23 results are expected to be in line with market expectations, delivering double digit growth across revenue and profits. In response to the macroenvironment and short-term order run-rates, the Board believes that the financial performance in FY24 will be below that achieved in FY23, with the Company's revenues more heavily weighted to H2 of FY24. Dotdigital Group 93.75p £280.5m (DOTD.L) The SaaS provider of an omnichannel marketing automation and customer engagement platform, announces its unaudited interim results for the six months ended 31 December 2022. Group revenue increased 9% to £33.8m (H1 2022: £30.9m), driven by favourable FX movements, improved customer retention, new customers and increased revenue per customer. Recurring revenue represents c.95% of revenue, while contracted recurring represents 79% of total revenue. Adjusted EBITDA of £11.1m (H1 2022: £12.2m) and adjusted operating profit of £7.5m (H1 2022: £8.9m), remains in line with expectations. Duke Royalty 33.35p £138.8m (DUKE.L) A provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and North America, announces that it has entered into an US$8.75m royalty financing agreement with Instor Solutions, Inc. Further diversifying Duke's revenue base. Instor is Duke's 20th royalty partner since inception and, post buyouts, increases the number of current royalty partners to 15. Agreement is on typical Duke terms: 30-year secured financing, monthly cash payments starting at the typical range, distributions commencing immediately and to be adjusted annually based on Instor's year-over-year consolidated revenue performance. Johnson Service Group 117.4p £508.4m (JSG.L) The United Kingdom-based company that provides textile-related services to businesses and consumers announces its preliminary results for the Year Ended 31 December 2022. Total revenue increased by 42.1% to £385.7m (2021: £271.4m). Adjusted EBITDA increased by 54.5% to £104.9m(2021: £67.9m) giving a margin of 27.2% (2021: 25.0%). Adjusted profit before taxation increased by 306.4% to £38.2m (2021: £9.4m). Price increases and other actions were implemented throughout 2022 to help offset cost inflation. Post period the Company acquired Regency Laundry for £5.75m. The Board expects the result for the year 2023 to be in line with market expectations. LungLife AI 77.5p £19.8m (LLAI.L) A developer of clinical diagnostic solutions for lung cancer, announces that further to its announcement on 27 February 2023, the final version of the health economics publication is now available. There have been no changes to the results or conclusions, which show LungLB® is projected to be a cost-effective solution for US insurers covering individuals with indeterminate lung nodules. The publication can now be accessed here: Journal of Medical Economics Vol 26. Marula Mining 8.1p £8.6m (AQSE:MARU) An African focused mining and development company announces the establishment of Muchai Mining (Pvt) Limited, an 80% owned Zimbabwean operating subsidiary of Marula. The remaining 20% holding will be held by local Zimbabwean company, Gondo Mineral Resources (Pvt) Limited (GMR). The decision to establish the subsidiary company and have an operating presence in Zimbabwe follows an extensive due diligence that is being completed on a number of opportunities in Zimbabwe’s fast growing battery metals sector. The establishment of Muchai Mining is in line with the Company’s strategy to identify, develop and advance new, prospective battery metals opportunities in East and Southern Africa. Physiomics* 4.3p £4.2m (PYC.L) The oncology consultancy using mathematical models to support the development of cancer treatment regimens and personalised medicine solutions, announces its unaudited financial results for the six months ended 31 December 2022. Revenue was £338k, down 8% year-on-year. The Company significantly enhanced its sales and business development process and as a result, diversified its client base over the course of the last year. The operating loss increased to £287k due to the reduction in grant income, higher staffing costs and travel expenses for in-person conferences. During the period PYC signed its first contract directly with Cancer Research UK and completed the NIHR -sponsored PARTNER study at Portsmouth Hospitals University NHS Trust. Physiomics is looking forward to a solid second half, underpinned by substantial contracted revenues, as well as other possible projects which are in late-stage discussions. SkinBioTherapeutics 21p £36.4m (SBTX.L) A life science business focused on skin health, announces the launch of AxisBiotix-Ps™, a food supplement to alleviate the symptoms associated with Psoriasis, into the Spanish market. Building on the initial launch in the UK where customer retention rates have risen to above 80%, the launch of AxisBiotix-Ps into new markets in Europe is the next milestone in its commercialisation strategy. Sales in this new market will be managed directly by the AxisBiotix team in the UK, with products being distributed through the Company's EU hub in the Netherlands. Italy and France are the next target countries, with discussions for the individual country regulators underway and commercialisation expected during the year. STV Group 305p £142.5m (STVG.L) A Scottish digital media brand, providing consumers with quality content on air, online and on demand announces its Full Year Results to 31 December 2022. Total Group revenue decreased 5% to £137.8m (2021: £144.5m) as a result of marginally lower total advertising revenue, down 2%, and timing of production deliveries. Adjusted operating profit increased 2% to £25.8m. The Group reported Net debt (excluding leases) of £15.1m (2021: net cash £0.3m), driven by short-term working capital needs to support Studios growth; which will unwind as programmes are delivered. The group remain on track to hit or surpass its 3-year growth targets to the end of 2023 to; Double digital viewing, users and revenue to £20m; Quadruple Studios revenue to £40m; and Achieve at least 50% of operating profit from outside traditional broadcasting. If you would like to unsubscribe, please email enquiries@hybridan.com with “unsubscribe me”. Chef: Emily Liu 0203 764 2344 emily.liu@hybridan.com Chef: Sacha Morris 0203 764 2345 sacha.morris@hybridan.com
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STV Group’s FY22 results and FY23E outlook, announced this morning, are in line with expectations. The resilient performance through the economic downturn (adjusted PBT +2% in FY22 and we forecast -10% for FY23E) underlines improving earnings quality from STV as the group continues its diversification from broadcast to streaming and studios, which together should generate over half of group profits for the first time in FY23E. We forecast good aggregate growth prospects for the broadening portfolio, at an undemanding valuation (8.9x ‘bottom of the cycle’ FY23E EPS with a 3.7% dividend yield).
While the environment is tough, STV has continued to make progress and even grow profits modestly (+2.4%) when delivering a 4% beat. Looking forward 2023 won’t be easy from a macro perspective (and we do edge down forecasts), but the Company is on track to achieve its key goals of growing its Digital and Studios businesses and driving diversification of revenues and profits. This is raising the quality of earnings and the potential growth rate in our opinion.
STV continues to be viewed as a mature broadcaster, yet it is transforming into a growing streaming and production business. We see continued double-digit growth prospects in these areas, together with a resilient broadcast business, and calculate five-year growth of 7% pa in revenue / 10% pa in operating profit for the group (FY23E-FY28E). Near-term economic pressures are factored into current EPS estimates, but should also drive eyeballs towards STV’s free AVOD service. Current valuation (7.6x FY23E EPS / 4.3% dividend yield) looks modest given the longer-term potential.
Total dividend pay outs in 2023 could be set to hit a new record of £85.8bn, according to AJ Bell’s Q4 2022 Dividend Dashboard. In 2018, total pay outs peaked at £85.2bn and will not surpass that in 2022. FTSE 100 pay outs of £79.1bn are forecast for 2022 compared to £78.5bn in 2021, excluding specials. The recent rally in sterling vs US$ has reduced the sterling pay out of dollar-denominated payments from the oil & mining sectors. In this edition of our Income Monitor, we cover developments in the sector. We show data screens of the current & forward dividend yield of UK stocks by FTSE Index.
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The Company has issued a trading update for FY22. H2 advertising has turned out a little softer than our early September estimates but given the level of volatility and uncertainty a lot closer than many would have thought. Revenues edge down 5.1% with mitigations limiting the impact on our EBIT estimate to just 6.5%, meaning that profit is almost flat (-1.5%) against the record FY21. For a year where huge inflation has impacted the world and some expected an advertising market collapse this is a good result. Looking forward to 2023 we attempt to calibrate our expectations given the recent trading information now available and take a view on likely mitigation activity. Our EBIT revision implies it will fall 8.1% YoY.
STV has announced a multi-faceted deal with ITV that will boost STV Player content, audience and monetisation potential through to the end of 2029. On the content side ITV will license new ITVX premiere content to STV for the STV Player exclusively in Scotland. In terms of optimising STV Player audience monetisation ITV will now sell STV Player inventory and use its yield-boosting data-driven Planet V advertising platform. This is an excellent extension of the existing sales partnership and should drive additional scale benefits for STV. While the macro backdrop may be creating trading volatility, strategic development of this nature will help optimise STVs positioning in the more-robust quality end of the market that will help near term and create long term value.
The H1 performance was encouragingly robust set against the deteriorating global macro backdrop. Revenues were very close to PGe and profit was in line, but for a H1/H2 cost timing factor. STV advertising appears to be matching our existing cautious expectations and Q4 remains important but should benefit from the first ever Winter World Cup. After updating for H1 results our forecasts barely move. Investors’ focus is on near-term macro uncertainty and the share price does factor in a sustained deep recession. The scale of government consumer and business support has now become clearer, which is helpful. Advertiser activity for the seasonal peak period will also become clearer and early signs don’t reflect an activity drop. Seasonal peak focused advertisers are unlikely to cut marketing spend on a whim given how critical it is to profitability. Given valuation and continued strategic execution the share price risk is demonstrably to the upside on a 12-month view.
STV’s interim results show an impressive performance despite tough comps and economic uncertainty and provide clear evidence of continuing success in executing its growth strategy. Notably, there is also a cautiously positive assessment of prospects for the remainder of FY22F. We are leaving our forecasts unchanged and believe the group’s current stock valuation not only fails to capture its growth potential and underlying strengths but is unfairly pricing in a pronounced decline in its performance and prospects. On this basis, we see substantial upside potential. House Stock.
Interim results preview
In the latest of our periodic comments on the broadcast and content production space we summarise current dynamics and forecast spend in the video streaming arena. Our overall conclusion is that a weaker consumer outlook and increasingly comprehensive selection of platforms will increase competitive pressure, but that original content will remain the key source of differentiation, leading to very substantial global spend. Amongst UK-listed companies, we believe this bodes well for ITV^, STV+ and Zinc Media^ in content production and for Zoo Digital^ in the content localisation space.
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Yesterday’s capital markets session provided a valuable insight into STV Studios’ strong commissioning momentum and its potential to make a substantial contribution to the group’s overall performance. We already anticipate a very attractive EPS and DPS progression and believe that STV’s current valuation substantially undervalues this prospect, the group’s cash generative qualities and its positive fundamentals. Specifically, we estimate a fair value of 524p per share. House Stock.
STV Studios has won another significant commission, this time for an 80-episode daytime entertainment show for Channel 5. This demonstrates the diversification across genres and, given its format, the potential for recommissions which continue to boost value and visibility for STV. STV is holding its Studios CMD today – it should be worth a watch.
More commissioning news / today’s capital markets session
STV Studios and Tod Productions have won a high-value 8-part scripted series “Criminal Record” for Apple TV+. This in combination with other wins and in particular the re-commission of Screw for Channel 4 means that STV is already on track to exceed its £40m Studios revenue target for 2023. This is an incredible step forward for future revenue visibility and drives a 7% revenue and profit upgrade for Studios. From a broader perspective it also now means that STV has executed one of its key strategy components early.
Media - Trading Comment - STVG STV Group+ (STVG, House Stock at 285p) - More positive commissioning news
The Company has secured a recommission for a second series of the high-value hit drama series “Screw” for Channel 4 and we understand it will be another 6x1 hour format series. A second series will lift medium-term potential for more international licence sales of both series and build library value. STV Studios has been targeting returnable series and this drama recommission is another strong indicator that the strategy is working. STV group execution remains strong.
Broadcasting and streaming - Tighter government regulation positive for ITV^ and STV+
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Against a backdrop of the sharp falls seen in equity markets – the FTSE 100 down 7% having been down 9% from its high and the FTSE 250 down 15%, having been down 20%, the importance of dividends to investors remains key. This year we have seen a continued recovery in dividend payments. In this first edition of our new Income Monitor, we look at recent developments regarding dividends, share buybacks and the outlook. We have also included a screen of UK stocks by Index with a dividend yield between 3%-7%.
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Strategic excellence vs macro uncertainty We update our forecasts to reflect the FY21A results. We leave P/L forecasts largely unchanged, and introduce FY24E numbers. The resilience of these growth forecasts reflects innovative strategic thinking that was executed extremely well. We update our debt/cash forecasts to reflect the good cash control delivered once again. The rating is modest and disconnected from the fundamentals of the business. We maintain our Buy recommendation and 470p TP. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com 3-page note
STV’s FY21A results revealed a record performance from both a financial and operational perspective and provided a reminder of its strong underlying momentum and an upbeat outlook assessment. We forecast a very attractive EPS and DPS progression – a prospect that, in our view, sits at odds with the group’s modest valuation multiples. Specifically, we estimate a fair value of 516p. House Stock.
STV Group+ (STVG, House Stock at 315p) - Very strong full year performance and positive outlook
Strong results, debt free and forecast unchanged FY21A results were good as expected, especially in Studios. The year has started well, with TAR up 20% in 1Q and +10-15% in April. Our existing assumption of flat national advertising for the year reflects the tougher comps later in the year. There is a lot of macro uncertainty at the moment, so we leave forecasts unchanged despite the strong start to FY22E. In our view the stock remains fundamentally cheap in an uncertain market. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
Revenues and earnings grew 35% and 39% in 2021, ahead of PGe. Cash was £11m better than expected, driving a net cash balance. There was strong growth across the board with key strategy objectives tracking very well. Unsurprisingly the Company is confident about achieving its 3-year plan targets. The only thing holding us back from even more optimistic forecasts is sober caution on global macro. STV execution has become the norm; the valuation should rise to reflect this.
STV has made two positive announcements in the last couple of weeks which, we suspect, may have been overlooked amidst the macro and geo-political uncertainties impacting financial markets. The first detailed a significant new content commission, while the second flagged the addition of more attractive content to its STV Player streaming platform. We regard the group’s stock valuation as extremely modest and continue to see significant share price upside potential.
The latest Screen Business report from the BFI paints a very encouraging picture of the substantial growth opportunity available to UK content production companies - reinforcing the messaging from ITV’s upbeat investor seminar last week. We regard this as a very beneficial backdrop for both ITV and STV (our preferred play) and maintain our positive view on both stocks.
Yesterday’s very encouraging trading statement (which led us to upgrade our FY21F adj. EPS estimate by 7%) and upbeat capital markets session reinforced our conviction that STV offers one of the most compelling investment cases within our Media coverage universe. In this report we summarise our key take-aways from these touch points and reiterate our 570p fair value estimate.
Trading update – Strong 4Q drives upgrade STV has updated the market on trading ahead of the CMD. A strong final quarter drive upgrades, mainly from the National revenue stream, a move foreshadowed by ITV’s recent trading update. The result is a 3% revenue upgrade and a 2% PBT increase to £23.5m, giving EPS of 39.8p. The emergence of the Omicron variant means our outer year cautious growth assumptions remain unchanged. We reiterate our Buy recommendation and 470p target price. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
STV has provided an update on trading ahead of its Investor Event focusing on the Regional business. Total Advertising Revenue (TAR) was in-line with the previous guidance but Q4 is stronger than expectations. Broadcast and Digital have seen strong mid-teen H2 growth despite a tough prior year comp. We believe STV will achieve record revenues in Digital, National, Regional and Studios businesses in 2021. We also forecast record profitability for the group. We lift our forecasts which in turn raises our Target Price and reiterate our Buy rating.
Good tone to 4Q TV advertising ITV’s trading update reported 9M total advertising revenue (TAR) up 30%, with the 3Q outturn better than guidance at the interims (August up 24% and September +16%, from 17% and “positive”). The outlook for 4Q is for TAR growth of 11-13%, with October up 17%, November 12% and December 5-10%. We see this as a good backdrop for STV’s full-year results, and expect to hear from the company soon. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
STV has completed the December 2020 triennial pensions review agreement process with the pension trustees early. There will be no increase in the existing plan payments. We expect this to be a major relief to investors and provide confidence that the existing plans are sufficiently robust. The business is growing well, and a strong strategy is in place to scale it further. This should help to continue to reduce the relative scale of the pension schemes. With this issue out of the way the valuation looks even more attractive. BUY.
Confirming new numbers This note confirms in detail the revised forecasts that follow from the interim results on 9 September. We increase our FY21E and FY22E PBT/EPS by c.4%. We leave our target price unchanged at 470p. Whilst we rate the shares a Buy for their fundamental value, we see the rating comparison against ITV as being a near-term constraint. However, we see the modest rating applied to the UK broadcast sector as an open door for further international consolidation of the sector. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com 4-page note
Riding the wave of advertising recovery STV has emerged from the pandemic in a strong position. Audience numbers are excellent, commercially the company is successful (studios, regional and digital) and the strategy even through the pandemic has worked. 4Q is tough as comps are much harder, but the company has started 2H with 20-25% growth in TAR. Overall, we will upgrade PBT by c.£1m (4.5%) to £23m, giving EPS of 39p. We maintain our Buy rating and 470p target price. Malcolm.Morgan@peelhunt.com
The Company provided a strong update in July, leading us to upgrade our forecasts and marking a strong start to the new strategy plan execution. Profits are ahead of our revised numbers and the outlook is positive for H2 for all three units. Q3 TAR is expected to be up 20-25% led by the expanding VOD business. The Studios business bookings bank continues to build and extend and now has close to half of our FY22 forecast secured. We have to allow for greater activity related costs but even after these we still nudge up earnings estimates yet again. Better profits have enabled a better dividend pay-out and we lift these forecasts as well. TP rises to 562p and we reiterate our Buy rating.
STV’s interim results detail another very strong financial and operational performance, point to encouraging momentum going forward and reinforce our very positive view of its prospects and underlying strengths. We regard the group’s stock as materially undervalued with our fair value estimate of 516p suggesting 51% upside potential from current levels.
Forecast update We indicated at the time of the trading update we would revise forecasts. Ahead of interim results next week (9 September), we now set out those revised numbers in detail. They do not represent any change from the indicated numbers. The upgrade to PBT is 8% in FY20E and 5% in FY21E. We maintain our 470p target price and Buy recommendation. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com 3-page note
STV’s H1 update flagged strong trading, an impressive viewing performance and clear operational momentum, and included an upbeat outlook assessment – a view strongly echoed in ITV’s recent interim results. We raised our FY21F adj. EPS estimate by 3% in response and are bullish on the Group’s growth prospects and underlying attractions, which we detail in this report. We estimate a fair value of 516p – suggesting 41% upside potential. House Stock.
STV’s H1 update details a very impressive performance from a business firing on all cylinders. We have upgraded our FY21F adj. EPS forecast by 3% in response - adding to our expectation of strong organic growth and our positive assessment of the group’s underlying strengths. We regard STV’s current stock valuation as anomalously low and see significant scope for share price appreciation.
Strong 1H update – economic recovery and the Euros A strong first-half buoyed by economic emergence from Covid-19 and the Euros. Previously, we indicated upgrade pressure and today expect our forecasts to rise by c.8%, giving PBT of £22.0m and EPS of 37.3p. Momentum is maintained in the STV player, with a further major content deal with Banijay bringing in 1,200 hours of new content. We upgrade our one-year TP by 20p to 470p. We maintain our Buy recommendation. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
The trading update points to a very strong revenue performance across the Broadcast and Digital businesses with H1 TAR up 32%. At the profit level we now estimate a doubling vs H1'20, boosting our full-year expectations without having to adjust our macro-aware approach to H2 advertising revenue growth. The very strong H1 revenues in Digital and Regional demonstrate continued execution by the focused management team and we expect that H2 will show the Studios strategy proving itself given commissions visibility. We lift our TP to 500p in recognition of execution and expect the re-rating to continue as investors recognise the improving quality of the business and growing record. We reiterate our BUY rating.
AGM trading update Baroness Ford retires as Chair of the board today, leaving the company in robust health. Advertising growth has improved since the prelims - most noticeably in those areas directly managed by STV, VOD and regional advertising. Studios is set for a record year, with production back in full swing. If the trends seen in recent weeks continue, there is clearly scope to review numbers at the half year. The only item that is languishing is the share price – which in our view undervalues the demonstrable strategic success and trading recovery. Buy. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
BBC1 commissions police drama from Two Cities BBC1 has commissioned a 6x 60 minute police drama – Blue Lights – from the team at Two Cities. The story is set in Belfast. STV took a 25% stake in Two Cities in January 2020, with an intent to increase the stake as the business becomes profitable. This will be a major step in that path. This could in turn trigger an increase in STV’s stake. Although the critical success of the show is clearly not yet known, the first stage of securing any returning drama is the initial commission. Good news today from Two Cities and STV. Forecasts unchanged. Buy. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
STV’s FY20F results detailed a robust trading performance, impressive operational momentum, a strengthened financial position, and ambitious growth plans. All of which reinforces our positive assessment of its underlying attractions and growth potential. Based on our updated forecasts, we estimate a fair value of 435p per share for the group’s stock - suggesting c.30% upside potential. BUY
Accelerating diversification plans. The prelims were better than expected. The year started well, with total advertising revenue expected to be +7% to 9% in the first four months, supported by strong audience figures. Studio momentum is building with a substantial revenue increase now expected in FY21. Ambitious medium-term targets have been set and will see £30m invested over three years, with some resultant margin pressure possible in the digital division. The aim is to see non-broadcast operating profit rise to 50% of the total by FY23. There will be small tax and share count adjustments to largely unchanged forecasts today. We increase our TP to 450p. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com 4-page note
Strong January metrics for the STV player STV player has delivered strong January metrics, with the player being available in more homes, with more people taking advantage of greater content. We leave our forecasts unchanged for now but this is a good start to the year. Buy, TP 435p. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
Strong Q4 delivers full-year outperformance Group profit will be at least £1m ahead of current expectations, driven by healthy Q4 regional and digital growth. PBT/EPS rise by 6.0% today to £16.3m/34.2p. Moreover, cash control will see core debt below £20m, a significant beat. Yet again STV has demonstrated that in those areas that it controls, the group strategy is delivering outperformance. Today’s news builds on the important Sky deal announced in December. We reiterate the Buy recommendation and 435p target price Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com 3-page note
Expanding partnership with Sky STV is expanding its partnership with Sky. Its content will now be available not only in Scotland to Sky Q customers, but across the whole of the UK from this week onwards. The deal increases STV’s audience reach to 8m Sky households. In addition, the player will now automatically be installed on Now TV devices. While the news is beneficial to the company, we believe it is too early to change our forecasts for 2021/22. However, the expansion of reach together with STV’s growing digital content investment strategy underpins the potential for long-term revenue growth for the group. In our view, STV remains a materially mispriced stock. We maintain our Buy and 435p TP. Malcolm.Morgan@peelhunt.com, Jessica.Pok@peelhunt.com
Yesterday’s interim results detailed a resilient H1 performance against a very challenging backdrop, provided a reminder of STV’s underlying strengths and importantly, flagged an improving outlook for advertising spend. We continue to rate STV as a well manged, entrepreneurial business with strong operational momentum and a clear and credible strategy for accelerating growth in Digital and Production and capitalising on its dominance of the Scottish commercial TV market. Against this backdrop, we view the group’s stock valuation as extremely modest and see considerable upside potential. BUY.
Yesterday’s shareholder approval of a £16m (gross) equity raise will result in a material and timely strengthening of STV’s balance sheet - complementing a range of other COVID mitigation measures. This inflow should also allow the ongoing execution of management’s digital and production growth strategy and position it to capitalise as and when the advertising market improves. Based on our revised forecasts, we view the group’s stock valuation as very modest and see substantial long-term upside potential.
We regard STV as a well-managed business with a credible medium-term growth strategy and believe it is well placed to benefit as and when COVID-19 lockdown measures are relaxed. Based on our revised forecasts, which admittedly incorporate a greater degree of risk than under “normal” conditions, we believe recent share price weakness has been overdone and have reinstated our (previously under review) BUY recommendation.
We were pleased by the strong performance detailed in STV’s FY19A results and continue to regard it as a very well managed business with a clear opportunity to significantly accelerate its growth potential. Despite reducing our advertising revenue assumptions to reflect the potential impact of COVID-19, we forecast a solid EPS and DPS progression. We will continue to monitor external developments but believe that recent share price movements have factored in an overly pessimistic scenario. We see substantial long-term valuation upside and reiterate our BUY recommendation.
STV’s interim results detailed a strong financial showing against a challenging backdrop, further advertising outperformance versus ITV and good progress in implementing its three-year growth strategy. We have trimmed our adj. PBT forecasts to reflect these results and updated guidance (FY19F - 5%) but continue to forecast strong medium-term EPS and DPS growth and see good potential for a material valuation re-rating. BUY.
Yesterday’s capital markets event highlighted the considerable progress achieved to date in delivering against STV’s growth strategy and reinforced several aspects of our positive investment case – notably the potential for its Digital and Production operations to generate substantial growth. We remain fundamentally positive on the group’s prospects and regard its stock as materially undervalued. BUY
Simon Pitts, the new STV CEO presented to our sales force and we learned that his background as Director of Strategy and Transformation to MD of ITV’s digital and pay TV strategy has equipped him well to redress STV. Action points include driving VoD take-up, which is 10x more valuable than STV2 impressions, and create a production business based on IP and returning shows in order to drive margins. STV's underlying deal with ITV is unchanged and thus limits STV to the downside as it kicks of a new growth journey.
STV Group Flash : New CEO begins, with the shares near a three year low
STV Group : New CEO begins, with the shares near a three year low (12-Jan-2018)
In line interim figures and an unchanged full year outlook are accompanied by a further step-up in cash distribution. On top of confirming a 17p dividend for FY17E (+13% yoy) and a 60-80% forward dividend payout rate, STVG also now flags an additional shareholder return of £10m (c25p/share) over the next 18 months. This underlines the company’s confidence in its operating resilience and financial position – despite market concerns around the broadcast TV model and STVG’s pension deficit. Our full year PBT estimates do not change, but EPS nudge up due to the distribution (which we model as a buyback) and STVG looks even more attractive now to income funds. For FY17E/FY18E we now forecast a dividend yield of 4.5%/4.9% from ordinary dividends, with a further boost of c6% spread over 18 months from the capital return.
STVG has confirmed Simon Pitts (currently head of ITV’s OPI division) will take over as CEO, with effect from January 2018. We view this as a loss for ITV and a gain for STVG. Pitts brings a deep understanding of the ITV network, plus handson experience in managing the key strategic issue facing STVG – the transition from broadcast to streaming. We believe STVG has picked up a very strong recruit here, helped by fallout from the recent ITV and C4 succession processes, and reiterate our positive view on the broader equity story at STVG.
We forecast STVG’s core TV business to deliver growth in profits and cash flow for many years to come, aided by growth in VOD revenues and a cost base which is much more variable than that of ITV. Even after eventual DTT switch-off, current investments in data should underpin a viable future based on targeted video advertising. Our valuation of STVG’s core business more than accounts for the current EV, giving investors a free option on several areas of potential upside we see to current numbers. With a 4.7% prospective yield the shares offer steady income and growth attractions, and an attractive alternative to ITV in our view. We initiate with a Buy rating and 460p Target Price (28% upside).
A strong performance from the higher-margin regional and digital sales has enabled STV to drive strong growth in operating profit. The interim and full year dividend have been increased by 33% and 20% respectively and new KPI targets for 2018 introduced to support STV’s ongoing strategy to diversify the group’s broadcast franchise.
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.
Overall PBT was in line with our forecasts, with stronger performance from STV Player offsetting weaker performance in production. FY16 should be more balanced and we forecast revenue growth across all key divisions. The outcome of regulatory reviews in the coming months and several company-specific initiatives may provide support, if not a boost, to our forecasts and the share price.
We expect a return to revenue growth in FY16. Investment in Production should start to deliver and in Consumer STV is finding an increasing number of ways to leverage its strong brand. The target of 10% CAGR in EPS to FY17 looks achievable and forecasts may benefit from changes in regulation. On a c 40% P/E discount to peers, the shares look good value.
STV continues to strengthen its position as Scotland’s leading commercial TV broadcaster. Digital is growing strongly and City TV is successfully attracting new advertisers to television, although start-up losses left H115 profits lower, as expected. H215 has started well and our full year PBT estimates are unchanged. Net debt continues to reduce and management reaffirmed both its intention to pay a 10p full year dividend (the interim was lifted by 50%) and its target of 10% CAGR EPS growth (2014 to 2017). The FY15e EV/EBITDA of 8.4x is still low for a media business.
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