QUALIPORT
Two Super Smallcaps

By Maynard Paton (TMFMayn)
September 16, 2002

It's time to review two watch list companies that reside at the smaller end of the stock market.

Metal Bulletin (LSE: MTLB) published its half-year results late last month, while Ulster Television (LSE: UTV) presented its interim update today. Although both media companies have suffered from the general malaise in the advertising industry, the two still possess dominant market positions. Both firms have long histories of high margins, low working capital requirements and few tangible assets -- all of which has generated superior returns on shareholders' equity in the past.

Precious Metal

Here's the interim performance of Metal Bulletin:

Six months to June 30th            2002               2001

Turnover (£m)                      20.9               19.8
Operating profit* (£m)              2.8                3.3
Pre-tax profit* (£m)                2.5                3.3
     
Earnings per share* (p)            3.63               4.34
Dividend per share (p)             1.90               1.90

(*Adjusted for exceptional items and goodwill)

Key points about Metal Bulletin are:

* Worth £80m, Metal Bulletin is a leading publisher of news, information and statistics about various commodity markets. Metals, textiles, shipping, energy and minerals are some of the sectors covered. The company's journals and analyses are generally seen as industry 'bibles'. (Read more | more).

* Metal Bulletin endured a tough first half. "Difficult" trading conditions in the metal, mineral and mining sectors saw underlying turnover fall 12%. Last year's £32m purchase of North American rival BCA and the £8m purchase of American Metal Market ensured that overall sales rose 5% to £21m. Excluding an £0.4m exceptional charge, operating profits fell 15% to £2.8m.

* The ongoing downturn in trading has prompted various actions. Revamping the Metal Bulletin and American Metal Market publications and introducing more electronic distribution initiatives should position the company well, as and when the recovery appears.

* No near-term profit recovery is expected, with the company's advertising activities remaining "difficult to predict". After accounting for deferred acquisition payments, Metal Bulletin generated free cash of 8.95p per share during the twelve months ending June 2002. Assuming a static financial performance in the year ahead, demanding a free cash flow yield of 7.5% would require a share price of 119p. The shares currently stand at 145p.

Tellytastic

Here's the interim performance of Ulster Television:

Six months to June 30th            2002               2001


Turnover (£m)                      22.5               20.9
Operating profit* (£m)              6.9                6.9
Pre-tax profit* (£m)                6.8                7.0
     
Earnings per share* (p)            9.12               9.29
Dividend per share (p)             3.95               3.80

(*Adjusted for goodwill)

Key points about Ulster Television are:

* Valued at £198m, Ulster operates the ITV television franchise for Northern Ireland (it having held the licence since 1959). With rivals including the Republic of Ireland's RTE and TV3 channels, Ulster operates in ITV's most competitive region. However, it remains the strongest of all ITV broadcasters, with a 2001 peak time market share of 37.3%, well ahead of the 34.8% ITV average, BBC Northern Ireland's 23.3% market share and Channel 4's 7.2% market share. (Read more | more).

* Over the past two years, the group has ventured into other media areas. Ulster bought the province's leading Internet service provider in March 2000 (costing £4m), Cork radio station County Media in April 2001 (£23m) and Limerick radio outfit Treaty Radio in June 2002 (£10m). Applications for local UK radio licences and more Irish radio acquisitions are planned over the coming years.

* Ulster's latest half-year was characterised by "very testing markets". Although ITV's overall advertising revenues were down 13% during the period, Ulster managed to restrict its own deterioration to just 2%. Combined with greater programming costs, operating profits from Ulster's television division fell from £6.8m to £6.0m. A full contribution from County Media, plus the Internet business moving into profit, helped group operating profits remain steady at £6.9m.

* Ulster provided some encouraging remarks concerning the second half of the year. Third quarter television advertising revenues are currently up 15% on last year, with a +5% nine-month advertising performance currently outrunning the 2-3% ITV average. However, Ulster didn't commit to any continuation of the upturn for the fourth quarter.

* Assuming profits from the television and radio divisions remain flat and the Internet business generates full-year operating profits of £0.3m (i.e. double the first-half contribution), Ulster's prospective free cash flow will be in the order of 17.6p per share. At 377.5p, the shares offer a forward free cash flow yield of 4.7%. Even if the improving advertising market led to a 10% expansion in free cash over the next twelve months, a share price of 258p would be required for a prospective free cash flow yield of 7.5%.

More: Metal Bulletin discussion board | Ulster Television discussion board