STV [LON:STVG], the Scottish free-to-air television channel published a trading update ahead of its year-end today (15th December).
The television station said that its Total Advertising Revenue (TAR) revenue would be down year-on-year by around 2%. However, the statement noted that 2021 was a “record year” and advertising was up 8% compared to pre-Covid 2019 figures.
Ahead of target
Chief executive, Simon Pitts said in a statement to the market: “With over 30 new shows commissioned this year we have already secured GBP50m to GBP55m in revenues for 2023, significantly ahead of our target [to quadruple revenues to GBP40m by 2023], and our commissioning pipeline continues to show good momentum.”
As previously reported, STV, Scotland’s most watched prime-time TV channel has prioritised original ‘UK-flavoured’ content creation through its unit, STV Studios, as one of its key priorities in the coming years and was looking at developing the ‘box-set’ and live streaming model through its STV Player.
Pitts had said earlier: “In 2020 we said that we were targeting GBP3m profit on GBP45 by 2023 [from our studios], and we’re nearly at that target now, ahead of schedule. We’re similarly optimistic about the next few years,” said Pitts.
The company said STV Studios secured over 30 new commissions this year – double what it had completed in 2021 – “and previous full year 2022 guidance confirmed of GBP20 to GBP25m in revenues and at least GBP1m operating profit.
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The company had a strong November and December, with high audience figures for FTSE250-listed ITV’s [LON:ITV] Lifted Entertainment’s popular reality show I’m A Celebrity and the FIFA World Cup, with latter being STV’s most-streamed production to date, and the England football team’s defeat to France being the most-watched peak time programme in Scotland.
Celebrity boost
With nine-month TAR 3% down year-on-year as forecast, I’m a Celebrity and the World Cup gave STV’s advertising revenue a boost, with the period expected to be 1% down y-o-y. The company said: “[…] within that, October TAR was down 13%, November up 3% and December is expected to be up around 6%.”
Shore Capital, the stockbroker, holds STV as a house stock. Roddy Davidson, head of research said in a research note: “We have reviewed our advertising revenue assumptions to reflect the new information and guidance […] and estimate y-o-y TAR movements of -2% and -5% in FY22F and FY23F.”
Davidson continued: “We have also reduced our current year revenue assumption for STV Studios by around GBP6m, but have added GBP16m to our previous estimate for FY23F. The result is a 5% reduction in our FY22F adjusted EPS estimate (from 42.1p to 39.9p) followed by more substantial reductions of around 18% in FY23F and FY24F-with strong top line growth in content production and digital unable to offset a reduction in higher margin advertising revenues.”
The company’s shares opened trading today at 278p and had fallen to 274p within the first hour of trading. STV offered a one-year return of -21.4% and year-to-date return of -21.4% with prices ranging from 235p to 363p over a 52-week period, giving the company a market capitalisation of GBP129.9m.
STV said that its regional advertising, which includes smaller Scottish companies, assisted through the broadcaster’s STV Growth Fund, will perform broadly in line with national advertising, but is seeing its video-on-demand advertising: “continue to deliver good growth.”
Resilient and diversified
Pitts added: “While we remain mindful of the ongoing macroeconomic uncertainty, we are becoming a more resilient and diversified business that is well placed to take advantage of the growth in demand for streaming and global content.”
The company recently announced a partnership with ITV that strengthens its STV Player content and advertising proposition.
Davidson said: “This update, which follows similar comments from ITV, reflects the well-documented impact of macroeconomic conditions on advertising sensitive companies but, importantly, provides a reminder of TV’s unique ability to deliver very large audiences.”
He continued: “It is also pleasing to note the striking progress being made by STV Studios as it targets very strong demand for quality content from multiple sources. We would also cite last week’s announcement of an enhanced long-term strategic partnership with ITV as positive with regard to content sharing, advertising sales and driving incremental digital value in the streaming age.”
Deshe Analytics said: “At a high level, the metrics from STV Group plc’s 2Q22 financial report release provided many positive indicators. Their growth, value, and income factors indicate a well-executed and balanced strategy, which is generating exciting growth. There should be significant upside potential for the stock looking forward. We therefore gave STV Group plc a total score of 83 out of 100 and a ‘BUY’ recommendation.”
