‘Poor’ ad market hits GCap

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GCap Media, the radio group, on Tuesday said the current advertising market remained “very difficult and visibility poor” as it reported a narrowing of statutory interim losses.

Shares dropped by nearly 5 per cent to 211p following the news, which came as the UK’s largest commercial radio company said it had seen “exceptional decreases” in revenues in the summer due to lower advertising spend around the World Cup.

“For the rest of the period, monthly year on year performances improved but still reflect very difficult advertising conditions and audience declines. Total group listening hours being sold during the half year were down 5.5 per cent like-for-like on last year,” GCap said in a statement.

Ralph Bernard, chief executive, said: “Despite a very difficult advertising market, we are confident that we are taking the right steps to align our business to a rapidly changing environment.”

But he added the company expected tough trading conditions to persist over the next quarter.

Mr Bernard said the appointment of Michael Grade as executive chairman of ITV was “excellent news” for commercial broadcasters. “It provides a lift for the sector. I think the key point is that he’s been brought in not to cut costs but to improve content and I think that is an important message.”

Statutory pre-tax losses narrowed to £7.8m, compared with a loss last time of £10.1m, on turnover that was flat at £102.2m. Underlying profits were £8.4m down from £12.4m last time. Underlying results excluded an amortisation and impairment charge of £16.2m.

The group made an operating loss of £5.5m compared with losses of £18.7m last time.

Losses per share were 5.7p compared with losses of 3.5p last time. On an underlying basis, earnings per share were 2.5p compared with 4.5p last time.

Underlying comparative figures included the results from GWR and IRN for the whole period, rather than just from the date of the merger on May 9, 2005.

The interim dividend remained unchanged at 3.1p per share. The group said that as it reviewed its strategic options over the next few months it would be considering a more appropriate level of future dividend cover to allow for suitable investment in the business.

Last month, new figures revealed that Capital Radio, its flagship London station, had lost almost 20 per cent of its audience in the past year. GCap is aiming to shore up Capital’s performance with an advertising campaign which will begin “in earnest” in the early part of 2007. It said its recovery plan for the station remained on track.

The radio group, which is in discussions with Karren Brady, the managing director of Birmingham City football club, to head Capital, said talks were ongoing but that it could not make any further comment.

GCap will over the next six months launch two new digital stations, including jazz station the Jazz – to be launched on Christmas day – and a contemporary and classic hits station.

FT VIEW

Buyout speculation has underpinned this pure-play radio stock, and this idea may have gained currency in the light of last week’s $18.7bn buyout of Clear Channel Communications, the biggest chain of US radio stations.

But GCap is dogged by margin erosion, limited visibility and fears that shifts in the market are more than cyclical. It is trading on a multiple of 51.8 times for the year to March 2007, or 46 times on a December 2006 annualised basis, compared with a prospective pe of about 16 times for the UK media sector, which looks expensive.

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