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I think this is one of the best FTSE shares to buy now

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FTSE SmallCap company STV (LSE: STVG) operates as a digital media and broadcasting business. The firm has a refreshed” three-year strategic plan to accelerate the diversification of its trading. And the target is to achieve “at least” 50% of operating profit from business lines other than traditional broadcasting by the end of 2023.

Why I reckon STV is a FTSE share to buy now

And despite the coronavirus crisis, today’s full-year results report demonstrates progress towards that goal. However, the five-year financial and trading record shows advertising earnings have been patchy. There’s no escaping the large cyclical element in the business. On top of that, the sector is competitive. And the reason STV needs to diversify is to catch up with an audience that is migrating to digital channels leaving the traditional broadcasting operations behind. I see such trends as negatives regarding the case for investing in the shares now.

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Nevertheless, today’s figures encourage me. Revenue dipped by 14% compared to the prior year. And adjusted earnings per share plunged 18%. But the net-debt number dropped by 53%. And the directors restored shareholder dividends, saying the move is a measure of the Board’s confidence in STV’s future growth.”

In 2020, STV managed to generate a third of its operating profit from new revenue streams, so it’s well on the way to the 50% target. Digital revenue rose by 5%. And online viewing rose 68% with revenue via video-on-demand (VOD) lifting 12% during the year. However, total advertising revenue dropped by 10%.

The company also announced new content deals with Sony and eOne. And the studio division won 19 new commissions in the year, despite the pandemic. Meanwhile, in one measure of progress, audiences grew by 14% for STV broadcasting operations and by 83% on the STV Player.

Robust finances

The strong operational and financial performance enabled the company to pay back in full its furlough grant of £1.6m. Happily, STV is one of many publicly listed companies that have been sending coronavirus-related monies back to the nation’s coffers.

Adjusted operating profit came in “well ahead of initial expectations” at just over £18m. But that was still a year-on-year decline of 19%, although there was a “significant” improvement in the second half of the year.

Nevertheless, STV needed to strengthen its balance sheet in the summer of 2020 with a placing raising a gross sum of around £16m. And in early March, the company agreed to a new £60m revolving credit facility.

Looking ahead, the directors reckon the outlook for the business is positive and improving. And I see the stock as one with further to recover following the Covid crisis with the potential for further growth after that if the business can keep on winning digital market share. Although that outcome is not certain.

And I’m not expecting progress to shoot the lights out in the years ahead. STV has been struggling for several years. And the share price has essentially travelled nowhere in the past decade.

But I’m prepared to embrace the risks in the hope the firm will keep hold of its newly discovered growth mojo. With the share price near 335p, the forward-looking earnings multiple for 2021 is just over nine and the anticipated dividend yield is around 3.7%.

Given that forward growth will likely be quite slow, I see the valuation as fair rather than cheap.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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