STV Group - still an attractive share to own

STV Group (STVG.L): The corporate recovery at STV continues, with progress on many fronts. On the face of it though, these interims, to 30^th June 2015, look dull, with revenue down 2% adjusted pre-tax profit down 5% at £8.0m and adjusted eps down 10% at 16.8p. However, in a further sign of ongoing balance sheet repair, net debt came down from £40.1m a year ago to £35.0m and the interim dividend was hiked 50% to 3p. The guidance is that net debt should be less than 1x EBITDA by year-end and the total dividend will be 10p, up 25% year on year. Going back to the turnover line, whilst digital revenues grew by 30%, to £2.8m, other revenue was hit as last year was a FIFA World Cup year and there was a hiatus in Government spend over the General Election period this year. However, the second half will benefit from the Rugby World Cup. (I will leave it to others to tell me if Scotland will progress very far!) There have also been costs involved in establishing local broadcasting, such as CityTV in Glasgow, but these start up losses are close to being eliminated. In the production arm revenues fell with deliveries bunched in the second half. Today a partnership has been announced with GroupM Entertainment to develop new programmes, starting with a fly on the wall documentary pilot on sports teams, called “Dressing Room”. I reckon that the pixellating software and bleeper could be working overtime on that one. The pension fund remains an issue, albeit now manageable, with a £7.8m planned payment being made in this period, although there is little further concrete news ahead of next year’s triennial valuation.

The group has in place a long list of KPI targets, most of which it says it to course to meet by the deadline of end-2016. With these numbers being in line with expectations, consensus eps for 2015 of 40.5p should be met. At 455p that is a modest PE of 11.2x, with the forecast dividend of 10p being a yield of 2.2%. Consensus then looks at eps growth of almost 10% to 44.3p in 2016, with a 20% dividend hike to 12p. On those forecasts the dividend cover is still 3.7x, with balance sheet strength improving all the time. It strikes me that, with a fair wind, investors can expect to see further smart growth in cash returns over the next few years. I would also point out the news that UTV is considering selling its TV assets, with press reports suggesting that ITV are the suitors. So, even when production is seen as more valuable than broadcast in the digital age, there is still demand for those broadcast capabilities. Having been positive on the shares almost a year ago at 375p, all the above means that I would suggest holding on to the stock at today’s 455p. (Neil Cumming^, 27^th August 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