Investors seeking solid growth and a secure income at an affordable price should consider shares in RTL (BE:RTL). Europe's largest broadcaster is benefiting from a buoyant television advertising backdrop across its markets, while its budding digital and production businesses are growing quickly. Yet its shares, which come with an alluring dividend yield, are rated lower than those in broadcasting peers.
- Generally buoyant TV advertising
- Diversified revenue base
- Acquisitions have bolstered key markets
- Enticing dividend yield
- Second-half slowdown in revenue growth
- Content arm has struggled to make profits
RTL, which is 75 per cent-owned by German media giant Bertelsmann, holds stakes in 57 television channels and 31 radio stations, including RTL Television in Germany, M6 in France and Antena 3 in Spain. Its content production arm, FremantleMedia, operates in 29 countries and sources more than 10,000 hours of programming a year.
The group derived just over half its revenue from TV and radio broadcasting, 22 per cent from content and the balance from digital and other activities in 2015. Robust demand for TV advertising, plus a 72 per cent rise in digital sales to €508m (£426m), propelled revenue and adjusted cash profit to record levels last year. The key German business, which accounts for 60 per cent of cash profit, widened its adjusted cash profit margin to 32 per cent. And RTL's gains continued in the first quarter of 2016, as it delivered double-digit growth in sales and adjusted cash profit. And a positive outlook for German, French and Spanish TV advertising markets bodes well for further gains this year.
FremantleMedia, which has struggled to turn sales growth into profit, has made a dozen acquisitions since the start of 2015. Those have bolstered its competitiveness, underpinning strong first-quarter sales growth. The division has shifted its focus to scripted programming, which should attract Netflix, Amazon and other content buyers. And its YouTube channels - more than 240 of them - have amassed more than 20m subscribers. Meanwhile, the budding digital division has benefited from investments in online video producers and digital advertising businesses. Management expects the digital division to account for 10 per cent of group turnover by 2020, up from 8.4 per cent in 2015.
RTL earmarks around €250m a year for acquisitions, but pays out unspent money via a special dividend so long as net debt is below cash profit. It has spent only €56m on deals so far this year and net debt is well below likely cash profit. That creates scope for another special payment, which broker Liberum suggests will be €1 a share.
RTL's management expects full-year like-for-like sales growth of 3 to 5 per cent and broadly stable profits. That could prove conservative, and Liberum's analysts project cash profit will jump by 9 per cent in 2017. Yet RTL's shares trade at an undemanding 14 times forecast earnings for 2017 - a discount to broadcasting peers - and there's an enticing prospective yield of 6.7 per cent.
| RTL (FWB:RRTL) | ||||
|---|---|---|---|---|
| ORD PRICE: | €74.40 | MARKET VALUE: | €11.5bn | |
| TOUCH: | €74.24-€74.40 | 12-MONTHHIGH: | €85.79 | LOW: €68.60 |
| FORWARD DIVIDEND YIELD: | 5.4% | FORWARD PE RATIO: | 14 | |
| NET ASSET VALUE: | €19.08* | NET DEBT: | 20% | |
| Year to 31 Dec | Turnover (€bn) | Pre-tax profit (€bn) | Earnings per share (€) | Dividend per share (€) |
|---|---|---|---|---|
| 2013 | 5.82 | 1.18 | 5.2 | 7.0 |
| 2014 | 5.81 | 0.97 | 4.1 | 5.5 |
| 2015 | 6.03 | 1.16 | 5.0 | 4.0 |
| 2016† | 6.24 | 1.14 | 4.9 | 4.0 |
| 2017† | 6.43 | 1.26 | 5.3 | 4.0 |
| % change | +3 | +10 | +8 | nil |
Normal market size: 300 Matched bargain trading Beta: 0.7 *Includes intangible assets of €3.26bn, or €21.05 a share †Liberum forecasts, adjusted PTP and EPS figures. Dividends exclude special payments of €4.5 in 2013, €3 in 2014 and €3.5 in 2015. £1=€1.20 | ||||
