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In the six months to 31st March 2000, group turnover rose 14% to £59.5m, operating profits jumped 16% to £21.3m and earnings per share leapt 26% to 20.5p. Stripping out discontinued operations, relating to a rather disastrous venture into restaurants a few years ago, Capital's underlying operating margin is calculated at a whopping 40%. Hardly the sign of a business under intense industry pressure.
Capital are making tentative steps in the world of digital radio, both national and local, and have an Internet e-commerce operation. But these developments are at a very early stage. Apart from pushing advertising rates continually upwards, there's only one way the group can expand for the long-term -- buying other radio stations.
Firstly, any potential competitor needs a to get hold of one of a limited number of licences to broadcast. Secondly, any additional licences that are granted tend to be given to minority stations with niche audiences. And thirdly, there's little in the way of running costs needed to maintain your station -- a few DJs, a studio and a mast.
Couple all those features with familiar brands and a constant need for most companies to continually advertise through your service, and it all makes a commercial radio broadcaster the nearest thing to an investment gold mine.
It all should mean that if you're the leading mainstream radio broadcaster of the largest city in the country, you should be laughing all the way to the bank. And from looking at today's interim figures, Capital Radio (LSE: CAP), appear to be exploiting their money-spinning position to the full.
Tuning in to profit
In fact, the radio industry is undergoing some sort of renaissance at the moment. During 1999, radio was the fastest-growing "traditional" advertising medium, second only to the Internet. Radio's market share of total advertising spend has risen from 2.6% in 1992 to 5.6% last year. Industry pundits expect that figure to rise to 8% over the next few years.
Part of this growing trend is perhaps explained by the audience profile of Capital and the other mainstream radio broadcasters. Capital stresses that the cost for an advertiser to reach 1,000 adults in the lucrative under-34 age bracket through its main Capital FM station is just 15% of reaching the same audience through ITV.
Looking for further growth
Thus Capital raised the stakes to see off Scottish Radio Holdings (LSE: SRH) earlier this month to purchase Border Television (LSE: BTV) for £151m cash. Quite sensibly, Capital will divest the television operation of Border to Granada (LSE: GAA) for £50m, while keeping the juicy "Century" branded radio stations for itself. Border owns the biggest regional radio licence outside London, and its three major stations have all recently generated advertising growth rates greater than the industry norm. All in all, it looks a very tasty purchase.
As with most media companies these days, you need to dig out your rose-tinted spectacles when considering a purchase. At 1547.5p a share, Capital stand on a lofty 40 times this year's earnings. Although advertising rates are currently "buoyant", with near-national coverage through the Border acquisition almost at hand and various new media initiatives on the go, Capital shares do look up with events. But Capital have the leading position in UK commercial radio, with the very rewarding and dominant London position. Given that "franchise", I guess Capital will always look a touch expensive.
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