TV Franchise Bids – Assessments
It is “highly unlikely” that Thames Television will retain its franchise, according to a new report from Barclays de Zoete Wedd.
The report posits that, if Thames keeps its franchise, it is likely to be rated at a significant premium, both for its earning prospects and because Thorn is expected to sell its majority stake to the highest bidder in 1994. However, BZW feels that Thames is unlikely to emerge as one of the winners in October.
In contrast, BZW is optimistic about the future of LWT: “The operation of a weekend-only structure is logistically awkward, and LWT’s cost structure means that its chances look good.”
The report goes on to state, however, that LWT’s “strong management and excellent track record should not necessarily be a cast iron guarantee for retaining its franchise.” In addition, LWT’s bid in the region of £40m will severely impact on profits for the first few years of the franchise.
The report predicts pre-tax profits of £5m and £18m for 1991 and 1992 respect- ively for Thames, and £19m and £25m for LWT. A troubled future is predicted for Anglia TV, with the rumoured £16m+ bid more than double the 1990 Exchequer Levy. The report calculates that pre- tax profits in 1993 will be adversely affected by £5m, and the dividend cover put under strain.
“The prospects for improving product- ivity levels in the future are less obvious for Anglia than many other contractors; the pre-tax profits per employee achieved in 1990 are amongst the best of all the TV companies.” The longer term prospects therefore “look dull” if the company retains the franchise. Pre-tax profits for Anglia are estimated at £11m in 1991, and £12.5m in 1992.
Although the report acknowledges that the recent rights issue for Granada TV has taken the immediate financial pressure off the company, “the group is likely to struggle to make a great deal of progress in a difficult environ- ment.”
Pre-tax profits for Granada are predicted to hit £79m in 1991 and £103m in 1992.
With regard to TV-am, BZW feels that the company’s “aggressive management and efficient operating structure is unlikely to be sufficient to save the franchise from a reputed £10m higher bid . Assuming Sunrise passes the quality threshold, the main point of interest will be the break-up value of TV-am.”
BZW predicts £22m and £27m in pre-tax profits for TV-am in 1991 and 1992 respectively.
One of the most discussed franchise bids is that by TVS. The report is confident that TVS will pass the quality threshold “so long as its projections do not weaken the perceived quality of money.” Following investment pledges from Time Warner and Associated Newspapers, BZW believes that “these illustrious share- holders should provide some endorsement for the credibility of the franchise application.”
The report suggests, however, that the company’s projections are optimistic, being based on advertising revenue growing at a real average compound rate of 5.5% pa and NAR share growing from 11.7% in 1993 to 12.0% in 1997.
TVS is predicting pre-tax profits of £1.1m in 1993, rising to £38m in 1997. A revenue growth rate of 3-4% pa would make these projections impossible to achieve: “It is quite possible that the ITC will reject the plan as unachiev- able.”
BZW estimates pre-tax profits of £2.7m in 1991 and £16m in 1992 for TVS.
Barclays de Zoete Wedd: Contact Tim Rothwell, 071 956 3407