Shares in GCap Media fell this morning on poor results but the radio company still doesn't look cheap.
Several media shares have had a tough time this year and the outlook for the sector still looks tough. Indeed GCap Media
(LSE: GCAP)
said today that the current advertising market remains "very difficult."
What's more, today's interim results also revealed an 8% fall in total revenue to £102m while adjusted earnings per share fell from 4.5p last year to 2.5p. The interim dividend is maintained at 3.1p a share.
So it's no great surprise that GCap's share price has slipped 4% today to 212p. The question is: are the shares now worth buying?
Well, GCap certainly has some pluses. Its flagship station, Classic FM, has an affluent audience which should continue to grow as the population ages. I'm also a big fan of GCap's xfm rock brand, which targets the hard-to-reach audience of young men between 15 and 30. Xfm now broadcasts on FM in London, Manchester and Scotland, and has an even bigger UK footprint on digital radio.
The growth of digital radio should also boost GCap. Digital means that listeners have access to more commercial stations which means that the BBC's audience share should fall. Commercial stations now command 66% of all digital radio listening whereas the BBC has more than 50% of the market in the old-fashioned analogue world.
Perhaps the biggest plus for GCap is operational gearing. In other words, revenue can rise significantly without a correspondingly high rise in costs. This gearing means that GCap may not be as expensive as it looks at first glance. True, the company currently trades on a steep price/earnings ratio of 33, but earnings could rise fast on a more modest rise in revenues.
GCap also improved its balance sheet after the period end by selling two stations for £60m. That should mean that net debt is now around £17m which is very manageable.
So there are plenty of positives, and I should add that I wrote in May that the shares would be tempting if the price fell to 220p (higher than today's 212p price.)
But we're now in November and I'm worried about two things. The advertising market as a whole still looks rotten, and I'm not convinced that GCap has sorted out the malaise at its main London station, Capital Radio. So, for me, 212p doesn't look that cheap today. I'll carry on watching.
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