View from City Road: Carlton cashes in on video kids

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The Independent Online
PARENTS know the relief of plonking fractious youngsters in front of the telly to watch a video. The company that profits from these sedatives is Carlton Communications, which yesterday reported a solid 15 per cent increase in pre-tax profits.

In the past two months Carlton's US video duplicating arm has churned out 17 million copies of Walt Disney's Beauty and the Beast. In Britain Peter Rabbit, which it has also published, looks destined for tens of thousands of Christmas stockings.

People are increasingly buying pre-recorded videos for keeps - the so-called sell-through market, as distinct from rental. In the US, sell-through - mainly children's and special interest tapes - has grown by a compound 42 per cent over the past five years. Carlton now expects similar growth elsewhere. It has 35 per cent of the video and audio duplicating and distribution market, and has signed long-term contracts with many of the biggest studios, including Warner, Home Box Office, CIC and the all-important Disney.

The division produced a pounds 15.5m increase in profits to pounds 46.6m - almost half Carlton's total earnings. Sell-through is one reason to get excited about Carlton. Its video and sound products division, which makes the clever gizmos that produce television and movie special effects, is another, producing a rise in profits from pounds 14m to pounds 19.4m.

But there are risks. The television and film services division, which processes film for the studios and offers post-production services to television makers, has little immediate growth potential, although Carlton blames exchange rate movements for some of the decline. An untimely acquisition could also knock sentiment.

The biggest uncertainty is Carlton's clutch of British television assets, notably Carlton TV, which takes over the Thames franchise on 1 January, and its 20 per cent in GMTV, which begins broadcasting on 1 January, 20 per cent of Central and its recently acquired stake in ITN. Much depends on the advertising market and Channel 3's share of the advertising cake as competition increases from BSkyB, Channel 4 and, soon, Channel 5.

Forecast profits of pounds 128m this year translate into earnings per share of 42.3p, placing the company on a multiple of about 17 times after yesterday's 2p share price fall to 717p.

Pricey, but not unattractive, considering the likely upturn in the US economy, where Carlton earns 55 per cent of its profits.

(Photograph omitted)