Shares slump

Advertising slump will see slide in STV profits

Simon Pitts
Simon Pitts: challenging market

Shares in STV fell after the company said it expects lower operating profit this year as it takes a hit from weak UK television advertising revenue.

The Glasgow-based broadcaster said operating profit are likely to come in at about £20m as the drop in advertising affects that rate of commissioning from its studios.

Adjusted operating profit last year came in at £25.8m and in 2021 it was £25.2m. On a statutory basis, operating profit last year was £25.3m (2021: £21.6m). 

The shares closed 11.25p (5.88%) lower at 180p.

The company has been unable to replace the revenue boost from last year’s men’s football World Cup. However, the underlying linear advertising market has also been softer than expected due to the ongoing economic uncertainty in the UK.

In a trading update today the group said revenue was up by more than 30% for first 9 months, more than offsetting the decline in linear advertising.

Regional advertising is down 10% for the nine months to the end of September, ahead of national linear advertising (-14%), and the group expects regional to continue to outperform national for the full year.

Digital and Studios revenue and operating profit are expected to be materially up on 2022, underlining the continued success of STV’s diversification strategy. Studios operating profit is now expected to be at least £5m. Scottish advertising is expected to continue to outperform national.

STV Studios (including Greenbird) has continued its momentum in 2023, producing a record 70 series this year while securing c.50 new commissions and recommissions, despite the global commissioning market also being impacted by the economic slowdown.

STV Studios revenue will nearly treble this year to £65-70m, comfortably in excess of our £40m target, with operating profit of at least £5m.  This is below previous guidance of £70m of revenue and £6-6.5m of operating profit due to commissioning softness in the second half of 2023. Within this Greenbird will contribute £15-20m revenue and c.£3m of profit in the second half, broadly as guided.

Simon Pitts, STV Chief Executive, said: “STV continues to make strong strategic progress despite a challenging linear advertising and commissioning market impacted by ongoing economic uncertainty in the UK.

“Our diversification strategy delivered total revenue growth of more than 30% for the first 9 months of the year as well as material profit growth in our Digital and Studios businesses.

“While the linear advertising picture is weaker than expected in Q4, VOD advertising on STV Player continues to show good growth in 2023 and STV regional advertising is once again outperforming national thanks to the ongoing effectiveness of the STV Growth Fund.

“We remain confident in our future growth prospects, with a strong content line-up on STV and STV Player, a compelling pipeline of new programme ideas across the expanded STV Studios, and a clear growth strategy, ensuring that we are well placed for the economic recovery when it comes.”

Market reaction

Jonathan Barrett at Panmure Gordon said: “Q4 linear advertising has deteriorated, and visibility is poor leading to lowered guidance in a period that already had a tough comparative boosted by the World Cup.

“Studios has been impacted by a sluggish commissioning market, some production timing changes and some delivery date alterations, but the overall performance still reflects the critical huge step change in the scale of revenue and operating profit.

“The high operational gearing of advertising drives the majority of the 20% 2023 and 26% 2024 EPS downgrades.

“The announcement is bittersweet with downgrades souring the strong execution on scaling Studios and growing the Digital business.

“STV is hardly alone in feeling the cold macro wind so this announcement may in time be seen as a cyclical bump. Valuation and yield remain attractive.”

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