BT – Merging units, cutting costs
CRH – New VC arm
GSK – New London HQ
IR5B – Another buyback
RHM – More contract wins
STVG – Upbeat trading update
STVG – Upbeat trading update
STV released a trading update on Thursday covering advertising and Studios performance to end-2022. The advertising performance has proven resilience, with revenue from this source expected to be down c.2% versus 2021’s record year, a good outturn given the economic backdrop. Moreover, advertising revenue is forecast to be +8% vs FY 2019. STV has seen strong audience figures in November and December, driven by I’m a Celebrity (the most watched series across all UK TV channels in 2022) and the football World Cup (streams up >50% versus last year’s European Championships; the England-France quarter final had 1.6m viewers, making it the highest peak-time Scottish audience across all channels). On Studios, an impressive roster of contract wins (more than 30, compared to 15 in 2021) means that the Group has secured revenue of £50-55m for 2023, smashing its previous target of quadrupling revenue to £40m in that year. For 2022 management has reaffirmed previous guidance of £20-25m of revenue and at least £1m in operating contribution. Clearly, a weaker macro backdrop will weigh on advertising across the industry (and is presumably a factor behind this week’s 5% downgrade to expected 2022 earnings from Shore Capital, with c.18% cuts to 2023/2024), but STV’s huge audiences in its home market serves to better protect it from that headwind than its commercial rivals. The Studios performance is extremely strong and should help to counter the softer advertising impacts on Broadcasting. Bloomberg data has STVG trading on just 6.8x 2023 earnings and offering a 4.6% yield. It’s very cheap, to my mind, both in absolute terms and relative to peers (the Stoxx 600 Europe Media index is on 15.7x 2023 earnings; the FTSE All-Share Media index is on 15.4x 2023 earnings).
RHM – More contract wins
Rheinmetall’s strong finish to 2022 has continued, with further material contract wins announced. On Monday the Group announced that it had won a €300m order from “a well-known automaker” for its exhaust gas recirculation modules, although this has a long lead time, with production only starting in August 2026. RHM said that “winning this order reaffirms Rheinmetall’s strategic goal of maintaining its global market lead in the emissions reduction realm”, clearly an attractive segment within the ICE market. On Tuesday the Group announced the stepping up of delivery of combat helmets to the Bundeswehr. The background to this was an initial order in November 2020 for 20,000 helmets, but following the invasion of Ukraine, the Bundeswehr increased this order size in March 2022 to 300,000 helmets. Rheinmetall and two strategic partners are now handling a total order volume of more than €200m. On Wednesday the Group announced that it is supplying Slovenia with forty new build trucks under the German government’s “Ringtausch” multilateral exchange of equipment scheme. Slovenia, in turn, has handed over a similar quantum of Soviet era vehicles to Ukraine. This contract win is worth “in the lower two-digit million euro range” for RHM. On Thursday, RHM announced a €33m contract win for the delivery (in 2023) of 10,000 155mm shells to an unnamed European country. Then on Friday RHM announced that, following a successful trial, it has agreed to extend the initial six month lease of an anti-small drone system to Austria for another seven months. These wins demonstrate both the breadth of RHM’s product offering and its reach in terms of customers. There are clear structural growth drivers underpinning demand for RHM’s end products, which to my mind make the 14.8x 2023 earnings multiple (and 2.5% prospective dividend yield) look very undemanding.
CRH – New VC arm
CRH announced this morning that it is to establish a new venture capital unit, to be seeded with an initial $250m. This VC unit “will support the development of new technologies and innovative solutions to meet the increasingly complex needs of customers and evolving trends in construction”. More specifically, the fund’s mandate is to invest in companies that are: “developing the next generation of advanced sustainable building products and accelerating the industry’s path to decarbonisation; expanding automation and off-site construction methods to build more efficiently and safely; leveraging digital technologies to build smarter; and increasing market efficiency and optimisation to deliver better value for customers”. This seems like a good initiative, although $250m is a drop in the ocean compared to CRH’s scale (its market cap is €27bn). Bloomberg consensus has CRH on an undemanding 11.2x FY 2023 earnings and offering a 3.5% yield.
BT – Merging units, cutting costs
BT announced this morning that it is combining its Enterprise and Global units into a single ‘BT Business’ division. BT says this step “will enhance value for all our B2B customers, strengthen our competitive position, and deliver material synergies”. I suspect the latter is the key point here, with BT saying the combination will drive “significant and rapid gross annualised cost savings of at least £100m by the end of FY25”. On completion, BT Group will have three customer facing units – Consumer (UK consumers); Business (business and public sector); and Openreach (UK nationwide fixed access infrastructure). BT has a very strong cost reduction agenda that aims to deliver £3bn in gross annualised cost savings by the end of FY25. Bloomberg consensus has BT trading on just 6.0x expected FY (year-end March) 2024 earnings and offering a 7.0% dividend yield. It’s very cheap.
GSK – New London HQ
GSK is relocating its global headquarters to The Earnshaw building on the corner of New Oxford Street and Earnshaw Street (near Tottenham Court Road). This move will take place in 2024, ending the Group’s 20 year stay at its ‘old’ Brentford head office. This relocation is not a particular surprise given the separation of GSK’s consumer healthcare business, Haleon, over the summer. What is significant, however, is the relative scale of the buildings. The Earnshaw is 140,000 sq ft whereas the ‘nineighty’ (sic) building in Brentford has 5x that floorspace. So, the new building should result in useful cost savings. Interestingly, GSK owns the Brentford building and is now marketing it for sale. It’s tricky to know what such a ‘jumbo’ asset might be worth in this market but, as an academic exercise, commercial property listings suggest that rents in the area are in the £25/psf territory, so given the building runs to 690,000 sq ft and assuming a 5.00% yield suggests that GSK could (emphasis) receive up to £345m (pre-selling fees) for the building. At the end of 2021 the net book value of GSK’s land and buildings on its balance sheet was £3.7bn (£7.2bn before taking depreciation and impairment into account). Bloomberg has GSK (market cap £58bn) trading on an inexpensive 9.8x 2023 earnings and yielding 3.9%.
IR5B – Another buyback
On Wednesday ICG repurchased a further 890,000 (0.52% of the prior total) of its own shares at a price of €4.16 per unit. Since the start of 2022 the Group has repurchased 6% of its stock for cancellation in what is surely a positive sign around how management sees the outlook for the company. Bloomberg consensus has ICG trading on an undemanding multiple of 11.5x expected 2023 earnings and yielding 3.4%.
Theodosian Capital 