Investment column: GWR

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The Independent Online
IT MAY seem ironic but the Internet is suddenly offering new growth opportunities to radio, the original mass-market electronic communications medium.

From nothing less than a year ago, dot.com advertising will soon account for 3 to 5 per cent of broadcaster GWR's total advertising revenue. Surfers, it seems, like nothing better than listening to tunes as they while away the hours online.

That's not all the Internet offers radio. For the next decade, Digital One, Britain's only digital radio transmission system in which GWR owns a 63 per cent interest, is likely to reach two-thirds of its listeners through personal computers. The logic is simple. Digital radios cost more than pounds 600; a digital radio card for a PC costs pounds 100. PC-based users will also be able to record and mix music files for playback on MP3 headsets. For the moment, the biggest distribution platform for digital radio will be Sky Digital, which launches on 15 November.

GWR's existing stations also offer strong growth prospects. Revenues should grow by around 10 per cent annually as radio continues to gain advertising market share. Margins, at 28 per cent in the first half, up from 25 per cent a year ago, should continue to widen to reach the 35 per cent level enjoyed by peers such as Emap and Scottish Radio. Gains should also accrue from building Classic FM in Britain and expansion to overseas markets.

With a market value of pounds 508m, GWR shareholders have seen their investment double in the past year. At a prospective enterprise value to earnings before interest, tax, depreciation and amortisation ratio of over 19, GWR is hardly cheap.

However, the group's excellent growth prospects and positioning for the digital age offer a terrific long-term opportunity, as does radio sector consolidation when the Broadcasting Act is revised in 2002. The rating is justified and the shares are good value.

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