Yesterday’s trading statement by Granada Media, coupled with a downgrade at the beginning of the week by Merrill Lynch, has caused shares in the company to fall very steeply. Between Monday and close on Wednesday, Granada Media stock has lost 23.6% in value, closing at 438p on Wednesday. The trading statement, whilst on the whole positive, noted that advertising revenues were likely to fall back to a more ‘normal’ level in the second half of the year after being exceptionally high earlier partly due to the Rugby World Cup. The harsh response from the market, already worried about a downturn in advertising, caused stock to drop more severely than was perhaps justified.
The Financial Times points out that for a company that only recently produced a floatation prospectus, the fall following Merrill Lynch’s downgrade is ‘somewhat disturbing’. The paper also warns that tumbling stock is potentially bad news for Granada Media as the acquisition of United News & Media’s television assets is being paid for in majority by Granada shares. Should these shares lose significant value, United’s own shareholders may demand cash instead. It could also reduce the value of the HTV franchise, says the FT – Granada must dispose of this by the middle of next year. “Better management of market expectations is needed,” says the FT.
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