Carlton Communications Financial Results – Reaction

The FT asked whether Carlton was right to halve the dividend. Yes, if it wants the flexibility to invest in what it sees as the digital future – the ITV Digital (currently ONdigital) and ITV Sport projects (see Granada And Carlton Bring ONdigital Under ITV Brand). The key question, says the FT, is whether Carlton can make higher returns from throwing money at digital pay-TV and related acquisitions than shareholders could make for themselves.

Question marks hang over ONdigital, which is currently lagging a way behind Sky in the subscriber stakes and is not expected to break even until 2004. The FT wonders whether Carlton and Granada can carve out a profitable space for the digital terrestrial operator.

Add to these concerns the fact that advertising on the main ITV Network is falling with no visible recovery and you can see why stock dropped yesterday. The FT says that Carlton is trading on a premium to its European counterparts that is hard to justify.

The Daily Telegraph, meanwhile, notes that the dip in Carlton’s profits has been known to the City for a while preceding the results and that brokers have been successively downgrading their forecasts in recent weeks. This allowed the group to claim that the numbers were broadly in line with expectations and precluded Carlton from having to announce an actual profits warning.

Nevertheless, says the Telegraph, Carlton shareholders have every right to be angry about the way the news of their halved dividend has been handled. Chief executive Gerry Murphy could do better, claims the paper.

Stock in Carlton has halved over the last year or so, following a dip in the TMT sector overall.

ABN Amro: Hold UBS Warburg: Buy, price target reduced from 740p to 540p Lehman Brothers: Market Underperformer SG Securities: Buy