HTV, now at 288p, owns the ITV franchise for Wales and the West Country. This is a sound business with strategic attractions to bidders. But HTV is also reinventing itself with amazing speed as a programme maker and rights holder, supplying a booming market with a proliferation of new media outlets - so much so that in profits terms, the ITV franchise will soon be taking a back seat.
Something similar, in terms of a new activity propelling a wider group, has happened recently with the property firm Burford Holdings and its floated leisure development, the Trocadero, at the heart of London's Piccadilly. The shares were spun off on the Alternative Investment Market (AIM) at 43p on the basis of one Trocadero share for every Burford held and are now trading at 47p. At that price, with Burford ex the Troc at 113p, the combined value is 160p against the 108p at which I recommended the whole group last May. The Troc's potential as a virtual reality theme park in one of the capital's best sites was the sexy bit driving Burford's share price and, in stand-alone form, Trocadero stock could still have a long way to run.
Trocadero is not profitable at the moment and, after taking on a large chunk of Burford's debt, remains highly geared. Wheeler-dealing chairman Nigel Wray, who put pounds 650,000 of his own money into Troc shares at the float, freely admits the company has some of the hope characteristics of a blue-sky biotech stock. But equally it has the potential to capture the imagination, particularly of tourists, if the virtual-reality-city theme park concept, with shops, cinemas, rock'n'roll restaurants and exhibitions, works well and can be rolled out elsewhere.
At the moment speculation about future performance is very much a numbers game. The company has a property core by way of a rent roll from the Troc approaching pounds 9m, which should pay its interest costs. Administrative costs are minimal, leaving the business as a highly leveraged play on earnings from the new Segaworld theme park and other attractions planned for the site. Those may include a new "super-realistic cinema", replacing the Guinness World of Records show, which itself could potentially gross pounds 7m a year. Some observers say total profits might top pounds 20m a year after tax by the turn of the century, making the shares worth buying.
HTV's investment appeal, meanwhile, has been enhanced by the planned easing of rules on ITV franchise ownership, with the old two-stations limit being replaced by a maximum 15 per cent audience share. At a stroke any of the big three, Carlton Communications, Granada or MAI, with two stations apiece, are free to snap up tiddlers like HTV, which has only a 2.8 per cent share. After the new rules, the shares leapt to more than 300p from 266p, with analysts at brokers SBC Warburg suggesting they could be worth as much as 420p a share to a bidder.
But even without a bid. HTV is probably heading higher with the spectacular success it is enjoying in building the division that buys, sells and creates programming rights. All terrestrial television groups are heading in this direction to satisfy demand for content from new media, including CD-Rom and international markets as well as new cable and satellite channels. Arguably the biggest transformation is at HTV, however, where a relatively new management team led by Chris Rowlands pushed interim profits up 120 per cent to pounds 6.1m. Profits from the rights division fuelled the rise, tripling to pounds 2.1m.
HTV was in dire straits in 1992 and has been rationalised and refocused under Rowlands. More good news, however, is that the programming boom has barely begun, with HTV insiders talking of rights division profits quadrupling by the end of the century. Back-of-an-envelope calculations suggest that profits for the whole group could be of the order of pounds 30m by 2000 against 1994's pounds 7.3m and the pounds 12.5m the market expects for 1995. The current pounds 250m capitalisation may not seem cheap, but growth prospects give an idea how bidding may escalate if predators strike this year when the proposed new broadcasting bill becomes law. Investors who can buy near or below 300p or who accumulate the stock on any down days should do well.Reuse content