STV diversification offsets soft advertising market
STV said its diversification strategy and growth targets will be boosted by its £24m acquisition of Greenbird Media, producer of shows such as The Hit List and Late Night Lycett.
The broadcaster is expecting at least 25% increase in total revenue for the year and total advertising income to rise between 3% and 5% in Q3 but down for the full year. It said it is on on track to hit its target of £20m in digital revenues in 2023.
The forecast came as it reported group adjusted operating profit for the six months to the end of June of £8m, down 33% on 2022. This reflected an expected impact of declines in higher margin linear advertising revenue and inflationary cost pressure.
There was a 21% rise in total revenue of £75.3m for the half year, driven by organic growth in Studios and Digital, more than offsetting expected linear advertising revenue declines
Studios revenue came in at £27.2m, up 294% due to increased drama deliveries, with division profitable (£0.1m; 2022 loss of £1.0m) and strong H2 profitability coming through with expected seasonal second half weighting
Regional advertising revenue was down 14% to £7.3m (excluding Scottish Government spend, regional down only 2%)
Digital revenue is up 9% to £10.1m (VOD revenue +14%), with adjusted operating profit up 26% to £5.0m
The board proposes an interim dividend of 3.9p per share.
Chief executive Simon Pitts said: “Our overall financial performance in H1 was impacted by a challenging advertising market and cost inflation, as expected, although looking forward we see a more encouraging outlook.
“Q3 total advertising is expected to be up 3-5% driven by the Women’s Football World Cup and the Men’s Rugby World Cup which starts next week.
“Our business is well positioned to benefit when the advertising market improves and we also see strong profit growth coming through in STV Studios in the second half of 2023.”
Analyst Johnathan Barrett of Panmure Gordon said: “H1 revenues were ahead of PG expectations (£67m) with Studios storming ahead and more than offsetting the soft advertising market. EBIT was behind due to the lower advertising revenues (which are high margin) and cost timing in Studios profit.
“We do however still expect over £6m for full year Studios profit limiting the impact on our full year EBIT estimate to 5.7%. Our H2 advertising assumptions look cautious given the Q3 update, and we hold these estimates.
“The Greenbird acquisition [in July] is trading well (seven commission wins since acquisition) adding to H2 support and the full year effect on 2024 forecasts.
“On strategy, STV is on track to exceed its profit diversification target (over 60% vs 50%), more than double Digital revenues and more than quadruple Studios revenues (over £50m vs £40m target). The macro environment is tough, but STV is executing on the strategy that is improving the group’s long term growth potential and profit diversification.”