Investment column: Scottish Radio sounds healthy

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The Independent Online
HOW LONG can the radio boom last? In the past few years, commercial radio operators and their shareholders have enjoyed the best of all worlds. First, radio's share of the total advertising spend has grown from next to nothing to about 5 per cent as advertisers have switched away from more expensive media. Second, industry consolidation has yielded huge cost savings. Finally, general advertising spending has also been rising.

Clearly, this pace of growth cannot last. Commercial radio's share of listeners is unlikely to rise much further, so advertising growth is likely to slow. Room for further consolidation is limited.

Scottish Radio's profits are highly geared to advertising. Interim results, released yesterday, showed operating profits rising by a third to pounds 6m on sales up 16 per cent to pounds 21.3m. Of that, only a few percentage points was the result of acquisitions.

The encouraging factor, however, was that growth on the radio side was matched by rising profits in its local newspaper operations, where Scottish Radio has recently been acquiring and integrating new titles.

This shows that the company is more than just a radio operator - its skills in understanding and exploiting local markets extend to other media. As a result, it's no surprise that Richard Findlay, chief executive, will not rule out moves into other media, though he's reluctant to say which ones he might be eyeing up.

Strong cashflow means that Scottish Radio now has a pounds 5.6m cash pile with which to pursue acquisitions. The only problem is that Mr Findlay refuses to pay the inflated prices for which radio stations are now changing hands. Competition for deals in local newspapers is also becoming more intense.

That said, Mr Findlay still thinks advertising growth will be in the "low teens" this year, suggesting healthy profit growth. A bid from a larger media group also remains a possibility. On a forward earnings multiple of about 18 the shares, up 10p to 499p yesterday, fully deserve their current rating.