News on television
Thursday 14 October 1993
In the mid-1980s, Roger Luard and a group of investors were invited to take management control of Flextech, which owned minority interests in a number of oil-related businesses. One of the companies, Expro, had promise, but the others were hopeless. Luard increased Flextech's holding in Expro to 100 per cent and sold off the rest.
Over a period of six years, pretax profits were then increased from next to nothing to pounds 7m per annum. The institutions liked this expanding oil services company, but Luard had ambitions to get into the media business. Quietly, Flextech bought control of Children's Channel (a loss-making European cable and satellite channel), applied for and won a number of cable franchises and acquired a minority interest in HIT, a programme distributor.
Flextech then sold Expro for pounds 55m and returned pounds 40m, equivalent to 120p per share, to its startled shareholders. At the time the shares were around 160p, so investors had every reason to enthuse about the change of direction.
If, at that point, the company had been renamed 'Cable-Sat Communications' or something similar, the shares might have quickly established a large following and be much better known today. However, Roger Luard and his board decided to stick with the rather dull name of Flextech.
Since then a deal has been arranged with United Artists, a subsidiary of TCI, the largest cable company in the US and much in the news today. Through a joint venture, TCI also has very substantial cable interests in the UK. United Artists bought into Children's Channel, providing the company, at one stroke, with capital and a valuable association to help with distribution.
The second leg of this obscure company (I say 'obscure' because hardly anyone has heard of Flextech - there are no brokers' circulars available, so recognition is still to come) is a 39/61 deal between Flextech itself and Family Channel, part of another major US corporation. A UK version of the successful US Family Channel began broadcasting in September this year, having leased early evening and night-time satellite hours from (guess who) Children's Channel, which had recently acquired 24 hours a day of time on an Astra satellite.
Neither channel will make money in 1994, but both form part of Sky's new pounds 6.99 per month basic package. All participants in the package receive part of the subscription monies (as they already do from cable companies) and this should ensure fast-rising profitability for the channels from 1995. The scope for increased revenues from advertising is also considerable. Presently, there are around 3 million satellite and cable homes in the UK and the projection for the year 2000 is for up to 10 million.
The third leg of this extraordinary business is a joint venture in home shopping. Again this is with a US corporation, albeit a smaller one, called Quantum International. The partnership is between Children's Channel and Quantum, whereby Children's Channel's spare hours on Astra have been used since May this year to sell direct to homes in Europe via 'infomercials'. I understand from a recent quote that the Quantum/ Children's Channel venture has produced rising profits month on month since inception.
It is hard to make a reliable profit forecast for Flextech as so many of the figures are nebulous. My best guess is that in 1994 it will break even and, by 1995, earnings per share will be around 12p (excluding the valuable cable franchises). By then, the company will be seen to be growing fast and should command a high multiple.
Another factor has to be taken into account. Roger Luard and his board are brilliant at deals that keep adding value to their companies. On past performance, by 1995, they are very likely to have done a few more deals, taking Flextech a further quantum leap forward.
Meanwhile, there is little doubt that the news flow from Flextech will continue hot and strong. For example, home shopping is very topical at the moment and as Sky continues to expand, its success will ripple through to both Children's Channel and Flextech.
Most important, the potential cable, satellite and home shopping boom in the UK is dominated by News International and American telephone and cable companies. Flextech is the only pure play in the UK stock market and as such has the opportunity to develop into a really substantial media company. In that event, I suppose I could become quite fond of the name.
Flextech's shares are currently 154p to buy, capitalising the company at approximately pounds 52.8m. I recommend them to you as a long-term investment.
If you follow any of my recommendations, you should use a running stop-loss at 25 per cent below the highest price the shares reach after you purchase them. If, for example, Flextech's shares rise to, say, 200p and then begin to fall, the stop-loss would come into operation at 150p.
The author is an active investor who may hold any shares he recommends in this column. Shares can go down as well as up. The author has agreed not to deal in a share within six weeks before and after any mention in this column.
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