More on GCap Media
GCap Media: 2005/6 results
The annual results contained little new because the bad news - sharp declines in audience share in particular - were already known.
The declines in revenue had been announced in the last trading statement and the pessimistic outlook statement only confirmed what is obvious given the latest RAJAR audience share numbers that showed further losses.
We are not altogether convinced by GCap’s strategy. GCap has reduced the number of ads played consecutively (from 5 to 2) and the number of minutes of advertising broadcast per day (by “up to half”). Its own research has shown that this increases ad recall by 38%. Assuming advertisers are willing to pay 38% more per minute it is hard to see how this will lead to a net increase in revenue.
The development of a national brands also seems unlikely to lead to a strong turnaround. Of the three brands mentioned one, Classic FM, already is a national brand and it is hard to see how it can grow unless audience tastes grow. The only other significant classical broadcaster is Radio 3 which has a significantly different offering - going after that audience is likely to alienate many of Classic FM’s current listeners.
The planned development of the Planet Rock, XFM and Capital Gold brands seems more promising but is as yet unproven.
While there are opportunities to increase non-advertising revenue, but it looks highly unlikely that these can greatly alter GCap’s (or any other radio broadcaster’s) dependence on advertising - even Classic FM, the most successful of GCap’s stations in generating non-ad sales, only makes 17% of its revenues from non-advertising sources.
With no sign of a revival in radio ad revenues or that GCap is going to take more audience share, we do not expect GCap to produce much growth. It is on a historical PE of 31× with a 3.8% yield (at 243p). We would prefer to buy Emap which is considerably cheaper, is not a radio pure play and is producing growth.
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