Granada Media tumbles below issue price

A projected downturn in the growth rate of ITV advertising revenue yesterday sent Granada Media stock tumbling below its July flotation price for the first time. The shares dropped 9 per cent to 503p.

A projected downturn in the growth rate of ITV advertising revenue yesterday sent Granada Media stock tumbling below its July flotation price for the first time. The shares dropped 9 per cent to 503p.

Merrill Lynch analyst Neil Blackley cut estimates of Granada's pre-tax profit for the year to September 2001 by 21 per cent to £256m. Beyond softness in ITV ad sales growth, he cited Granada's more conservative accounting for the recently acquired United News & Media ITV assets, a higher fixed licence payment for the Anglia franchise and additional digital media costs.

"We believe the shares are unlikely to perform intermediate term as ITV [ad revenue] may be soft for 4-6 months," the report said. "ITV advertising is forecast to be down 17 per cent in October and minus 3 per cent in November, and we believe growth in the first half of 2001 is likely to be slow."

Granada Media floated in mid-July at 515p, but hit 676p last month. Granada Compass, which absorbed Granada's catering and hotel interests and owns 80 per cent of the media arm, has also fallen below its float price.

The report also hit Carlton Communications, the number two ITV company, which fell 32p to 580p. United News, which sold its three ITV franchises to Granada in late July for £1.75bn in stock and cash, dipped 29.5p to 711.5p.

A likely source of controversy is Merrill's valuation of ONdigital, the terrestrial pay-tv company jointly owned by Granada and Carlton, at just £1.0bn. Other City analysts have valued ONdigital at some £1.5bn-£2bn.

Merrill's lower valuation comes at a delicate moment for ONdigital, whose broker, Morgan Stanley Dean Witter, has been in talks with several telecoms firms, thought to include Telewest and Orange, about taking a stake in the broadcaster before an expected flotation later this year or early in 2001.