The Investment Column: Capital playlist puts it on hold

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The Independent Online
NO WONDER David Mansfield, chief executive of Capital Radio, gets angry if you suggest his 26-year-old business is mature. Unlike some of its rivals, Capital Radio is growing earnings in double-digits.

The company is hard to fault. Radio revenues grew 13 per cent last year. Margins strengthened to 40 per cent, sending underlying radio profits up 17 per cent. Mr Mansfield sees margins drifting even higher as sales rise and the cost base stays flat.

Capital's stations are enjoying the boom in radio advertising. Radio's shares of total display advertising is nearing 6 per cent. Meanwhile, the frantic attempts by Internet companies to establish their brands has seen a surge in spending. Revenue from so-called dot.coms, Freeserve in particular, accounted for 10 per cent of the group's advertising receipts. Analysts see nationwide advertising revenues growing 10 per cent next year.

The group has licences to create nine new stations, and next week launches Xfm nationwide on the SkyDigital network. The authorities will allow Capital to increase its current share of the radio audience by 30 per cent.

On the downside, however, the group's hefty investment in digital and interactive media will dampen pre-tax profits near-term. A pounds 5.5m investment, aimed at capitalising on the group's expertise in the music industry, will generate a pounds 4m hit on profits in the current year. Net revenues, at pounds 671,000 in the last nine months, are paltry.

Analysts expect full-year pre-tax profits of pounds 38m and 17.8p per share, putting the shares, at 1195p, on a forward p/e of 66. Despite exposure to the likelihood of digital radio becoming a standard in-car feature, the shares are no more than a hold at these levels.