Ulster TV bid looks a long shot

The Investment Column

Tiny Ulster TV has, probably undeservedly, ridden the takeover rumour wave in the ITV sector with gusto, rising from 900p a share last November, when the Government promised further deregulation of the commercial TV sector, to nearly 1,400p last night.

In fact, the company, with revenues of just pounds 34.2m, is an unlikely candidate for a bid. It controls the ITV licence for Northern Ireland, and as such does not abut any of the existing ITV regions, where logic might dictate some consolidation.

True, there is a chance that a "Celtic alliance" involving Scottish TV, Ulster and HTV could still emerge once the ownership limits are lifted later this year, but the chances must be considered slim.

Sensibly, the company has decided to give some of its cash pile back to shareholders in the form of a special dividend of pounds 1 a share, or pounds 10m, unveiled yesterday. That sent the shares up 85p to close at 1380p.

The extra cash became available once Ulster decided against bidding for a northern Irish cable licence, in league with UK cable giant Telewest. The company has kept back some money to help finance its 43 per cent shareholding in TV3, the proposed new channel for Ireland, and to pay for its share of ITV's commitment to digital terrestrial television.

Repaying shareholders is no doubt a good thing. All the same, one wonders whether there might have been better uses for the cash. The company's core business, its ITV broadcasting activities, are likely to encounter sluggish growth of 3 per cent this year. TV3 is still a year and half away, and won't be profitable straight away.

As well, there is still doubt about the future of funding arrangments in the ITV sector, where small regional players such as Ulster are currently subsdidised by the well-capitalised giants. That could change down the road.

Ulster is likely to report lower pre-tax profits this year of perhaps pounds 7.8m, next to pounds 8.2m this year, putting it on a pricey 27 times currently earnings. Expensive if no takeover bid is in prospect.