UTV - Crying into their Guinness

UTV Media (UTV.L): The group has, today, issued a profit warning relating to its new-ish start up TV channel, UTV Ireland. Progress so far has been slower than expected, but a first quarter pick up in audience growth seems to have petered out. Weekday evening viewing figures have been OK, but they say that they have performed badly in daytime and weekend viewing. They are now assuming that, despite initiating an action plan, audience figures will not pick up in the second half. Therefore they expect UTV Ireland to lose £11.5m in 2015, a jump from the previous £8.5m guidance in May and the £6m loss expected at the time of the Finals in March. As a consequence they have agreed with their banks to a twelve-month relaxation in the net debt to EBITDA covenant from 3.5x to 4.5x. The RNS does not state what costs or conditions this entails.

Whilst this is clearly bad news, the recent sale of Juice FM for a better than envisaged £10m showed that there might be useful value in their remaining twelve (lesser) UK independent local radio stations. The strategic review of the remainder of these UK local radio stations continues, so further disposals are quite possible. Post that Juice FM disposal, net debt was heading for around £40m, with historic EBITDA just under £20m, leaving them comfortably inside the then covenant. However crumbling EBITDA has now led to the covenant re-negotiation. The situation could be rescued by further disposals cutting the pile of debt, although this would be set against any loss of EBITDA. Anyway, consensus for CY2015 was for £11.6m of pre-tax profits. Simply knocking off £3m for UTV Ireland, gets to £8.6m, with eps of around 7.2p, although this assumes that trading doesn’t get any worse and might be optimistic. Still, at today’s beaten up 145p, that would be a PE of 20.1x and last year’s dividend of 7.5p is an historic yield of 5.2%. However, unless asset sales reduce debt significantly and UTV Ireland stabilizes, I cannot see the lenders letting UTV maintain that barely covered payout. The dividend looks at risk to me and income investors should walk on by. That said, it seems that almost anything is being bid for at the moment and this would be a great time for someone to test the board’s resolve…. (Neil Cumming^, 24^th June 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower