If you had followed that advice you will have just received a cash distribution worth 52.81p per old UTV share after the board returned £50.8m of the proceeds from the disposal through the issue of redeemable 'B' shares. The ordinary shares were then consolidated on the basis of five new shares for every seven held and the company's name changed to The Wireless Group. By my reckoning Wireless Group now has pro-forma net cash of £1.4m on its balance sheet. The board has also arranged a new four-year revolving credit and overdraft facility of £30m and are targeting a net debt-to-cash profit ratio of two times. As a result there is still excess capital on the balance sheet, so a further £4.2m, or 6.1p a share, will be returned to shareholders as a special dividend on 15 July, in addition to a proposed final dividend of 7.6p a share at the same time. In other words, a further 7.4 per cent of the current share price will be returned shortly to shareholders.
The question is whether Wireless Group's remaining businesses, which generated operating profit of £13m in 2015, warrant an enterprise value (market value less net cash on the balance sheet) of £125m for the group? There are sound reasons to believe they do. Moreover, if my analysis proves prescient, then the odds should favour the shares re-rating towards my 215p fair value target price in the coming months.
Positive trading outlook
After the sale of its television assets, Wireless Group is focused on its flagship talkSPORT radio complex and a further 12 local UK radio stations which in aggregate generated operating profit of £11.7m last year. In Ireland the company is the largest local radio operator with seven stations broadcasting and which made operating profit of £4.4m. So, net of central operating costs, these stations are generating a net operating profit of £13m.
It's worth noting, then, that the eagerly awaited European Football Championship kicks off in just over two months' time. Bearing this in mind, Richard Huntingford, chairman of Wireless Group, points out that "while a major football tournament typically would drive a 10 per cent increase in sales over the course of a calendar year, talkSPORT is experiencing good underlying sales growth in addition to the positive effect of the Euros which augurs well for 2016." He also flagged up that "our local radio stations are expected to perform broadly in line with the UK radio market for the year as a whole".
In other words, if these trends continue, then talkSPORT's advertising revenue could outperform analysts' current expectations especially if England's team of young guns shoot their way to glory during the tournament and extend the country's interest in the month-long tournament. Boasting on average more than 3m listeners every week, and with strong demand for the younger, mostly affluent male demographic segments of those listeners, advertisers are generally receptive to a significant increase in spot advertising rates, something talkSPORT could take advantage of if the national team does well. Furthermore, talkSPORT's international broadcasting business, now in its fourth season, continues to achieve double-digit sales and profit growth with rights in place for three further seasons.
Another positive take for me was the guidance on the Irish radio stations whose performance has so far lagged behind the recovery in the country's economy. However, Mr Huntingford says that "consumer expenditure is forecast to grow and this should translate into increased advertising expenditure", adding that "Irish advertising agencies appear to be cautiously optimistic despite the backdrop of the slowing global economy". He also notes that "at this stage, we expect single digit Irish radio advertising growth in 2016 with the first quarter softer due to a very strong comparative in January". The key point here is that there could yet be upside to revenue and profit from the Irish operations, too.
And there is a growth angle, too, as Wireless Group has just launched three new national radio stations on the second national radio multiplex D2: talkRADIO, talkSPORT2 and Virgin Radio, a music station operating under a 12-year license agreement with Virgin Group. True, start-up costs mean that these stations are expected to report losses of £3.6m this year, but it could be less as 50 per cent of 2016 budgeted revenue from the three stations have already been achieved which is very promising. They are then expected to post a small operating loss in 2017 and grow profitably thereafter. Wireless Group is also leveraging talkSPORT's brand overseas by expanding its geographical footprint in order to commercialise the increasing appeal of the Premier League globally.
Attractive valuation
The key point being that there could be significant upside to Wireless Group's earnings from the UEFA European Football Tournament to be held in France in early summer. That's because when the tournament was held in Poland and Ukraine four years ago, talkSPORT's revenues surged by 16 per cent in the first half of 2012 and its contribution over the course of that year rose by a quarter.
I would also flag up that the board has identified annual costs savings of £1.9m, a sum equating to 15 per cent of operating profit, and are targeting a further £1.1m reduction in costs in 2017. These are not insignificant sums.
So, with analyst Robert Stokes at Davy Stockbrokers in Dublin currently predicting the radio stations will deliver pre-tax profit of £13.2m on revenue just shy of £80m this year, the shares are being rated on a modest 12 times forecast earnings per share of 15.4p. However, adjust for the forthcoming 13.7p a share of dividends to be paid in mid-July to shareholders on the registrar on 20 May, and the prospective earnings multiple falls to only 11 times. That rating is simply too low for a group where the risk to earnings looks to the upside and I continue to rate Wireless Group's shares a trading buy on a bid-offer spread of 182.5p to 185p.
I have published four columns today and 30 in the past three weeks, all of which are listed below.
MORE FROM SIMON THOMPSON...
I have written articles on the following companies recently:
■ Plethora Solutions: Take profits at HK$0.079 ('On the takeover trail', 14 Mar 2016)
■ Somero Enterprises: Buy at 150p; target 185p ('A solid buy', 15 Mar 2016)
■ 32Red: Run profits at 150p ('32Red in the money, 15 Mar 2016)
■ Communisis: Sell at 44p ('Patience running short at Communisis', 15 Mar 2016)
■ Global Energy Development: Sell at 27p ('Global Energy plays waiting game', 15 Mar 2016)
■ Raven Russia: Sell at 30p ('Raven Russia battens down the hatches', 15 Mar 2016)
■ Stadium: Buy at 122p, new target price 150p ('Switch on for bumper gains', 16 Mar 2016)
■ French Connection: Buy at 42.75p ('Return to profitability looms for chic operator', 16 Mar 2016)
■ Fairpoint: Run profits at 159p ('Fairpoints to make', 17 Mar 2016)
■ Netplay TV: Buy at 10p ('Netplay's shares spin higher', 21 Mar 2016)
■ Satellite Solutions Worldwide: Buy at 5.5p, target 9p to 10p ('Blue sky tech play', 21 Mar 2016)
■ Miton: Buy at 30.5p, new target 38p ('Riding earnings upgrades', 22 Mar 2016)
■ Inland: Run profits at 86p, new target 95p ('Valuation surge boosts Inland', 22 Mar 2016)
■ Pittards: Crystallise loss at 71p ('Subdued demand hits Pittards', 22 Mar 2016)
■ French Connection: Buy at 43p ('Stakebuilding gathers pace at French Connection', 22 Mar 2016)
■ Safestyle: Run profits at 276p ('Exploiting a window of opportunity', 23 Mar 2016)
■ PV Crystalox: Speculative buy at 10p ('Lights start to glow at PV Crystalox', 23 Mar 2016)
■ Arbuthnot Banking Group: Buy at 1340p ('Banking on a banking duo',23 Mar 2016)
■ Cenkos Securities: Sell at 130p ('Cenkos profits slide', 23 Mar 2016)
■ Burford Capital: Run profits at 256p ('Legal eagle flying high', 24 Mar 2016)
■ 1pm: Buy at 62p, target 82p ('1pm's smart bolt-on buy', 24 Mar 2016)
■ Bilby: Buy at 128p, target 175p; AB Dynamics: Run profits at 390p ('British success stories', 29 March 2016)
■ IS Solutions: Run profits at 157p, new target price 175p ('Big data, big rating', 30 March 2016)
■ GLI Finance: Recovery buy at 32.5p, initial target 40.75p ('High yielding recovery buy', 30 March 2016)
■ Bowleven: Buy at 21.5p ('Investors overreact to Bowleven's write-downs', 31 March 2016)
■ Manx Telecom: Run profits at 215p ('A jewel in the Irish Sea', 31 March 2016)
■ Wireless Group: Buy at 185p, target 215p ('Talk is cheap', 4 April 2015)
■ Juridica: Buy at 43p ('Investor overreaction to Juridica write-downs', 4 April 2016)
■ First Property: Buy at 47p, new target 56p ('Maintaining a strong pole position', 4 April 2016)
■ Cohort: Run profits at 390p ('Contract wins boosts Cohort', 4 April 2016)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking
