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Tune in to Wireless for income

The talkSPORT broadcaster is reviving growth, yet its shares - which offer a big yield - look cheap
May 5, 2016

Investors looking for income on the cheap should consider Wireless (WLG). The rebranded UTV recently sold its television business to ITV, narrowing its focus to radio and paving the way for a big dividend payout to shareholders, equivalent to 7.6 per cent, in July. The group has also slashed costs and should benefit from an improving advertising backdrop in the UK and Ireland. Yet its shares trade cheaply, undervaluing the revitalised growth prospects and a transformed balance sheet.

IC TIP: Buy at 180p
Tip style
Income
Risk rating
Medium
Timescale
Medium Term
Bull points
  • Still time to bag July's 13.75p payout
  • Solid growth at talkSPORT
  • New radio stations should boost earnings
  • Recovery potential of Irish radio advertising market
Bear points
  • Mixed 2015 trading
  • Competition in Ireland

The gem in the group's crown is talkSPORT, the world's leading sports radio station with more than 3m weekly listeners. Its popularity with young, affluent men allowed management to hike advertising rates in 2015, which helped limit the impact of tough comparisons against a bumper 2014 caused by a FIFA-World-Cup advertising splurge. This year, talkSPORT looks well placed to benefit from the Euro 2016 football competition. Moreover, talkSPORT International, which is broadcast in six languages and 69 territories worldwide, posted double-digit growth in sales and profits in 2015. Wireless's other main business is Radio Ireland, the area's largest provider of local radio. The group also owns Sport magazine, 12 independent local radio stations, a fast-growing digital radio business and a small digital services operation.

 

 

Wireless netted £98m from the sale of its television business to ITV in late February. Management has already returned nearly £51m to investors through a share issue and five-for-seven share consolidation. On 15 July it intends to pay out a further £4.2m as a 6.15p special dividend along with its 7.6p final dividend payment for 2015. The shares go ex-dividend for both payments - which represent 7.6 per cent - on 19 May, so will be payable to anyone buying shares before then.

The group transformed its balance sheet with the ITV deal, which included the disposal of its pension deficit. It has also pruned its radio portfolio with the recent sale of Liverpool station Juice FM for £10m. And despite the capital return, Numis analysts expect the group's net debt to shrink by four-fifths to £8.8m in 2016. Moreover, annual cost savings of £3m are expected from 2017. Combined with the share consolidation, lower interest charges and reduced investment in new stations, EPS should rise sharply in 2017 (see table).

This year, Wireless is expected to invest a total of £3.6m in growth. It recently launched three national, digital radio stations: talkRADIO. The trio are off to a good start with half the projected revenue for 2016 already booked at the end of March, and management expects them to turn a profit in 2018.

While prospects look strong, the mixed performance of the group in 2015 does provide some grounds for caution. Sales slid 6 per cent in the Radio GB business, reflecting a tough comparative period that included the FIFA World Cup. Moreover, competition has increased in Irish radio in anticipation of a recovery in advertising that's been slow to materialise. Along with a big currency hit, this caused a 13 per cent sales fall. But an improving market backdrop should underpin a rally: GroupM analysts expect UK radio spot advertising to grow 4 per cent in 2016 - in line with 2015 - and Irish radio advertising growth to double to 4 per cent.

WIRELESS (WLG)
ORD PRICE:180pMARKET VALUE:£124m
TOUCH:180-181p12-MONTH HIGH:199pLOW: 134p
FORWARD DIVIDEND YIELD:4.3%FORWARD PE RATIO:10
NET ASSET VALUE:158p*NET DEBT:42%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)**Earnings per share (p)**Dividend per share (p)**
201482.711.99.47.25
201575.510.78.69.42
2016**80.09.09.87.50
2017**85.514.517.57.75
% change+7+61+79+3

Normal market size: 1,500

Matched bargain trading

Beta: 0.05

*Includes intangible assets of £167m, or 243p a share

**Numis forecasts, adjusted PTP and EPS figures, continuing operations only, excludes 2015 6.15p special dividend