STV Group describes itself as “Scotland’s leading media brand” with 92% of Scots interacting with it every month. The main revenue generator is advertising on Channel 3 in Scotland but the digital business is seeing strong growth. A modest valuation and business momentum suggest that investors should tune in.
On face value the media company STV Group looks attractive with growing profits and a falling net debt position. The company also presents a recovery story with the dividend reintroduced in 2013 after having been cut in 2007.
The business also appears to be underpinned by the renewal of the Channel 3 license in Scotland for 10 years from the start of 2015. This helps lower the cost of debt and allows for an increase in capital spending.
As such the business momentum look set to continue with advertising spending in the UK geared towards the economic recovery. To capitalize on this trend STV has launched city TV stations and is investing in its digital offering.
STV Group’s financial momentum
Source: STV Annual report
Looking at STV Group’s recent headline numbers and revenue rose by 7% in 2014 while earnings per share increased by 13% to 38.7p. Net debt fell 18% to £29.4m and the dividend for 2014 increased to 8p from 2p in 2013.
Set against this the valuation looks modest with the share price of 415p giving an historic P/E ratio for 2014 at 10.7X. The company is also targeting a 10% annual increase in earnings per share from 2014 to 2017.
The forecast valuation is therefore low with a 10.2X P/E for 2015 and then falls to 9.3X in 2016 and 8.5X in 2017. The forecast yield is 2.4% for 2015 and increases to 3.4% by 2017 with the payout more than 3X covered by profits.
Clearly this is a company seeing profits momentum and lowering its risk profile as net debt falls back. At the current stage of the economic cycle this combination is attractive as long as the underlying business is sound.
STV Group profile
In 1995 Independent Television was launched by what is now OFCOM to provide competition to the BBC. In England the licenses are operated by ITV, in Scotland it is run by STV Group…
