Carlton Stock Dives On Indefinite Ad Downturn

The downturn in the ad market, exacerbated by the dotcom marketing boom of last year, has seen a like for like revenues fall of 6% for the six months ended 31 March at Carlton. The group believes that the downturn is ‘cyclical and not structural’ and pointed to the ‘unrivalled’ position of ITV (in which Carlton is a major stakeholder) in the UK broadcasting environment as an indicator of Carlton’s position to benefit from the eventual advertising upturn.

Carlton and Granada – the other key ITV player – recently announced plans to bring their digital terrestrial TV service, ONdigital, into the ITV fold, creating a free-to-air, pay television and online business under a single management (see Granada And Carlton Bring ONdigital Under ITV Brand). This, says Carlton, marks an important shift in British broadcasting.

Carlton saw a headline profit before tax for the half year of £65.8 million; this is down 32.2% on last year’s £97.0 million, but is broadly in line with analysts’ predictions. Headline sales grew from £502 million to £530 million this time, boosted by the acquisition of the HTV franchise. However, advertising dropped 6.3%, compared to an 8% growth for the first half last year.

In March this year Carlton sold off the Technicolor film and video business to France’s Thomson Multimedia for £1.4 billion. Carlton is now concentrating on its television and online businesses – essentially through ITV.

The group says that “television in the future will be interactive and transactional, as well as providing traditional forms of entertainment and information, and will create new choices for viewers and new opportunities for broadcasters.” The industry is changing and Carlton believes it is well placed to pursue significant opportunities for growth.

Nevertheless, the immediate outlook – for the third quarter – is not so positive. Weaker demand for advertising has persisted, particularly from the internet, consumer goods and telecommunications sectors, the company said.

“Although comparison with last year becomes less demanding from our fourth quarter onwards, it is not possible at this stage to predict with any certainty the timing of an underlying improvement in the advertising climate. We remain confident of ITV’s readiness to take advantage of the upturn when it occurs. In the meantime, Carlton’s management is focused on maintaining ITV’s critical audience delivery and ensuring operating efficiency,” said chairman Michael Green in the statement.

According to ABN Amro, the airtime cost per thousand (CPT) last year rose too high relative to other commercial channels (especially Channel 4), causing ITV to lose advertiser share. The price differential is now closing, it says, and ITV should be able to regain a greater market share of advertising as a result.

Carlton has decided to halve its dividend from the 6.6p of 2000 to 3.3p this time. This is to give the group more flexibility in the current difficult climate. By 11:30am today Carlton shares were down 15p at 397p.

ABN Amro: Hold