The radio industry, like its cousins in TV and newsprint, is being hit by the inexorable rise of the internet. Surfing the web is now the nation’s favourite leisure activity, with men spending nearly three hours on average each day online. Unsurprisingly, the shares of commercial radio and TV stations, like GCap Media and ITV, have been pummelled as audience figures and advertising revenues have dropped. So what’s the answer? Well, as the saying goes, “if you can’t beat ‘em, join ‘em”. By introducing new interactive services, traditional businesses are fighting back. Take this company:
Gamble of the week: UBC Media (Aim:UBC)
UBC is the UK’s largest independent radio production company, making programmes for the likes of the BBC. Last year it launched a new national commercial news service for Sky to add to its established stable of traffic, travel and entertainment bulletins. Typically, it provides these services free-of-charge to radio stations in return for advertising airtime, which it then sells on.
UBC is growing its digital content interests by making podcasts for clients such as News International, The Guardian and Marie Claire, for instance. It is also starting to move into television. In the case of Marie Claire, UBC produces streamed internet TV content for its website, while it also provided Microsoft with online video coverage of last weekend’s Live Earth music concert. Although radio revenues from the BBC are likely to be flat in the near term, following the corporation’s sub-inflation licence fee settlement, total group sales are expected to grow as take-up of these services continues to expand.
I would value the company on a sales multiple of one, giving a fair value of around 9.5p per share. But the story doesn’t end here. Last week UBC announced it was part of a consortium with Channel 4 that had won the right to launch ten new national digital radio channels. The consortium will use UBC’s technical expertise and software products to create new content, which should also boost turnover. And at the end of 2007, UBC plans to launch a new service, Cliq, that will allow listeners to download music tracks from digital radio stations as they hear them.
Clearly, UBC is a high risk stock; it is presently unprofitable and the radio industry is undergoing significant change. But on pure fundamentals, together with net cash of £3m, the share price looks well supported. Moreover, the new radio licenses and the launch of Cliq, are effectively thrown in for free. So if one assumes that people will continue to listen to the radio, then UBC looks cheap at these down-trodden levels. Chief executive Simon Cole certainly thinks so, picking up 250,000 shares at 8p last week.
Recommendation: SPECULATIVE BUY at 8.38p (market cap £16.1m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments