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The company has increased its dominance of the Scottish TV market and has ambitious growth plans
Thursday 25 Mar 2021 Author: Tom Sieber

If you’re looking for a value stock with very attractive immediate growth prospects, we’ve got just the one. Scottish free-to-air broadcaster STV (STVG) is ITV’s (ITV) counterpart north of the border and outperforming its one-time parent.

STV trades on 9.7 times forecast earnings for 2021 and its pre-tax profit is forecast by analysts to grow by 37% this year to £20.2 million and then hit £23.3 million in 2022 and £27 million in 2023.

Investors could also earn a 3% yield from dividends this year after STV restated payments alongside recent full-year results (16 Mar), something that ITV notably failed to do when announcing its latest annual numbers.

STV’s decision to repay furlough cash reflected its confidence in the outlook, with net debt of £17.5 million materially better than analysts had forecast.

And in a move that will tidy up some loose ends, STV has reached an agreement in principle to exit its non-core lottery management business, subject to the approval of the Gambling Commission. This will remove ‘a negative cash drain’ on the business, according to broker Peel Hunt.


Advertising trends are improving both nationally and locally. STV benefits from an advantageous deal with ITV, struck in 2012 after a long-standing dispute between the two parties. This arrangement, lasting until 2024, insulates STV from both declines in the national advertising market and increases in the ITV programme budget.

The local advertising over which STV has control fell just 5% against 14% for national advertising revenue in 2020. Overall STV saw a decline of 10% in advertising revenue in the year but this situation is reversing rapidly and it expects total advertising revenue for April 2021 to be up between 60% and 75%.

The rebound looks set to continue, with the delayed Euro 2020 football tournament, which notably features a fixture between Scotland and England, a likely catalyst. Though one risk facing advertising budgets is the prospect of continued travel restrictions crimping spend by airlines and tour operators.

STV’s push to secure a greater share of local advertising has been supported through the STV growth fund. This offers matched funding for TV advertising campaigns, free advertising for start-ups and, for some consumer-facing businesses, even advertisements in return for revenue or equity sharing agreements. The venture attracted 91 new advertisers in 2020, taking the total to 236 since its launch in 2018.

While ITV lost audience share to the BBC over the last year, STV solidified its position as the dominant broadcaster in Scotland. The total audience on STV was up 14% in 2020, the highest growth of any channel in Scotland, with an all-time viewing share of 19.2%. STV
(the channel) was the most watched at peak time, 10% ahead of BBC1.

Online viewing on the STV Player platform was up 68%, the fastest growth of any video on demand service offered by a UK broadcaster as the company added new exclusive content and made it available on all major platforms across the UK.


The strategy for the next three years is to double digital viewing, user numbers, and advertising revenue to £20 million.

Another leg of this medium-term strategy is to quadruple revenue from the company’s STV Studios production business to £40 million.

These aims would support a target of deriving at least 50% of operating profit from outside its traditional broadcasting activities and they are backed by a planned investment of £30 million.

STV Studios enjoyed a noteworthy critical success in 2019 with Elizabeth is Missing – a one-off TV drama starring Glenda Jackson – with the leading actress winning prestigious BAFTA and Emmy awards for her performance.

Although the production arm was inevitably disrupted by the pandemic, the company won a record number of commissions in 2020, supporting the credibility of its ambitious 2023 revenue target.

A potential risk for STV is political uncertainty with the Scottish National Party looking for a mandate for another independence referendum in May’s Scottish Parliament elections.

However, STV chief executive Simon Pitts tells Shares that he is confident in the company’s position which is underpinned by long-term licences, noting the turbulent backdrop in Scotland has driven ‘extraordinary audiences’ for its political coverage.

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