STV LON:STVG, the Scottish free-to-air television channel published its full-year results to 31st December 2022 today (7th March).
Scotland’s most watched prime-time TV channel had a mixed bag. In revenue terms both headline figures were marginally down on 2021, with Total Advertising Revenue (TAR) down 2% to GBP110m and Total Revenue down 5% year-on-year to GBP137.8m.
However in the Profit column, the lead indicators were pointing in the opposite direction with Adjusted Operating Profit up 2% to GBP25.8m the same amount as Adjusted Profit Before Tax which came in at GBP23.6m. Adjusted Operating Margin was us 120 basis points to 18.7%.
Mixed bag
That said, if you were an STV shareholder looking for potential capital gains you’d be a tad disappointed with Adjusted Basic EPS down 7% to 42.3p, but if you were a buy-and-hold kind of investor, you’d be a tad pleased with full-year Dividends per share up 3p to 11.3p.
The shares opened trading today at 302.8p, jumped up to 307p in the first few minutes of trading before settling at around 302.95p as the first hour closed. STV has offered a one-year return of -4.7% and year-to-date return of 11.4% with prices ranging from 235p to 351.75p over a 52-week period, giving the company a market capitalisation of GBP147.2m.
STV increased its borrowing in 2022, moving from a slightly positive cash position of GBP300,000 at the end of 2021 to a debt exposure of GBP15.1m at the close of last year.
Advertising challenges
So not sure what to say on this one. The company obviously found it harder to bring in advertising revenues last year – which is not surprising given the economic turmoil of 2022 and the fact we are heading into recession and companies are cutting extraneous spending, of which advertising is one such category.
But, as previously reported, STV did know this was coming down the line, not least in the environment we saw last year, but as a longer-term trend as the media industry as a whole has to decouple itself from an advertising-led revenue model – whether that’s full-page spreads in cellulose-based physical newspapers and magazines, or 30-second commercial ‘messages from our sponsors’ on free-to-air scheduled television – as the public’s reading and viewing patterns have changed significantly in the last decade.
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The television station also gave the market due notice of this, stating in its December 2022 update that its Total Advertising Revenue (TAR) revenue would likely be down year-on-year by around 2%. STV also noted that 2021 was a “record year” and advertising was up 8% compared to pre-Covid 2019 figures.
As such the broadcaster has been diversifying its revenue model. As previously reported the company has, through its studios embraced the creation of proprietary content as the sector moves towards a streaming and download-on-demand approach championed by the likes of Netflix NASDAQ:NFLX and Disney NYSE:DIS, both of which incidentally have had tough 2022s, and performed feebly.
STV is seeing content creation as the road ahead, and Simon Pitts, the company’s chief executive double-downed on the direction of travel in a statement today, where he said: “Our diversification strategy, focused on driving growth in digital streaming and content production, continues to accelerate, with digital profit up 9% and Studios profit up 6%. Nearly 40% of STV’s earnings now come from these new growth areas as we reduce our reliance on traditional television and create a vibrant, future-facing media business.”
Fixing eyeballs
The company has also been fixing its ‘sticky eyeballs’ in place, striving to ensure that Scots don’t feel tempted to wander onto other services and not consume the commercial messages that STV has curated for them by bringing more content from other providers onto its in-house streamer STV Player.
Pitts again: “The advertising market showed further resilience in 2022 with STV total advertising revenues finishing only 2% down on our record 2021 performance […] as expected, given the uncertain economic climate and strong 2022 comparator, STV’s 1Q23 total advertising is down by around 15%, though digital VOD advertising on STV Player is expected to be up around 20% […] Our advertising performance should also be bolstered by a very strong content line-up which includes exclusive coverage of the men’s Rugby World Cup starting in September.”
Given the context of economy as a whole, the significant shifting of the media landscape and the broadcaster’s unexpected outperformance in 2021, last year’s results in full don’t look all that bad when looked at over the longer term. The direction of travel has been defined, and management are executing on a sensible growth strategy, which might take a year or two to show real bountiful fruit.
Operational and strategic progress
Roddy Davidson, head of research for Shore Capital, which has STV as a house stock said: “Today’s release details another period of strong operational and strategic progress [for STV], significant growth in the development of STV Studios and the STV Player VOD platform and, notwithstanding macro-headwinds and tough comps, a resilient advertising revenue performance and record profits.”
The broker noted: “…The STV Player delivered its highest ever viewing figures during 2022 (hours and streams +6% and +1.5% y-o-y respectively) with average monthly active users ahead by 10% y-o-y to 1.1 million […] Outlook comments within this morning’s release point to a challenging start to FY23F (echoing sentiments expressed by ITV LON:ITV last week) with 1Q23 TAR expected to be down by around 15% […] On a more positive note, digital VOD advertising is expected to rise by around 20% during the quarter. There is also confirmation that the group is on track to surpass its three-year targets (set in 2020) to: double digital viewing, users and revenue; quadruple Studios revenue and achieve at least 50% of revenue from outside traditional broadcasting.”
Despite the positive flourish, Shore Capital is taking a slightly more cautious approach lowering its FY23F and FY24F adjusted EPS estimates by 8% and 6% from 37.6p and 40.7p, to 34.6p and 38.4p. Despite this the broker still sees STV as undervalued and “having further upside potential.”
Bridgewise were a lot more positive on STV and have the stock as a ‘Buy’. The analyst said: “[STV’s] growth, value, and income factors indicate a well-executed and balanced strategy, which is generating exciting growth. We expect that this positive performance will continue in the coming months, and anticipate that STV will maintain good momentum even in a challenging environment. We therefore gave STV a total score of 81 out of 100 and a ‘Buy’ recommendation.”
