Bid rumours for sparkling HTV

INVESTMENT COLUMN

HTV's struggle to turn itself around looks complete, judging by yesterday's sparkling interim results. Three years ago the small ITV licence holder for Wales managed to lose pounds 20m; this year, it is on track for over pounds 13m at the pre-tax level. It is sharing its bounty with shareholders via a first half dividend raised two-thirds to 1.25p.

The company has made a virtue of its small size, lining up alliances and creating partnerships to expand its control of programming rights. These allow it to earn handsome returns, not only on its own programming - including the detective series Wycliffe - but on the programme libraries it has secured from such companies as Turner Entertainment and cartoon giant Hanna-Barbera.

Growth is being restrained by the high payments it is required to make to the Treasury as a condition of its ITV licence - pounds 11.6m in the first half alone - but operating margins remain juicy. Broadcasting alone provided pounds 15m of trading profit, representing about 30 per cent of turnover.

One reason for the recent turnaround in performance has been cost-cutting initiated since 1992 by a new management team. More recently, however, the main driver of profits has been an aggressive move into the exploitation of programming rights. These now account for about a third of the total and could make up perhaps 50 per cent within five years.

That said, the improved performance hardly justifies the current share price of 233p, up 1p yesterday, which represents 22 times full-year earnings, assuming profits hit pounds 13.5m. The shares are being buoyed by bid speculation, which the company did little to dispel yesterday when it announced the replacement of financial advisers Schroders with SBC Warburg, increasingly viewed as a media specialist. The most likely predator is STV, which will own 20 per cent of HTV once a complicated deal with programming packager Flextech gains shareholder support at a special vote tomorrow.