Standard Group Ltd announced their audited financial results for the full year ended 31st December 2014 on 16th March 2015
Recommendation: SELL, Fair value KES 33.42 (18.00% Downside)
Impaired Top line Performance: 0.75% Decline in Revenues to KES 4.78 Billion: The media company reported a slight drop in their total revenues from KES 4.82 billion (FY13) to 4.78 billion (FY14) thereby maintaining relatively similar turnover levels in comparison to last year. This was attributed to improved performance on print, television and radio advertising streams that saw a growth of 8%, 6% and 66% respectively despite the challenging business environment in 2014 for media businesses.
Operating Profits Surged by 5.61%: 8.08% Growth in Pre-tax Profits to KES 326.23 Million and 27.33% Hike in Net Income to KES 242.74 Million: Rise in the operating profits was underpinned by initiatives carried out by the management to improve the process controls through automation, bolstered control environment and effective cost management. This led to improved efficiency in running of the business hence, an improvement on operating margins to 9.29% (8.73%, FY13). This translated to improved PBT margins currently at 6.82% (6.26%, FY13) and PAT margins at 5.08% (3.96%, FY13). Earnings per Share similarly on an upswing, went up by 6.64% to KES 2.57. The stock is currently trading at a P/E of 15.86x and a P/B of 1.64x against the industry averages of 12.38x and 2.38x portending an overvalued stock going by its earnings. This indicates a looming probability for price correction of the stock in the near future.
Outlook: Print Business Expected to Steer Performance in 2015: Globally newsprint prices have been on the decline while Radio maisha has continued to grow both in listenership and ‘reach’ as a result of the group’s investments in new transmission sites. This is expected to steer growth on revenues generated from advertising albeit the high Capex from this initiative. The Standard Digital platform has also continued its leadership in this area with an impressive 37% growth in its revenues recorded in the previous financial year. The group has also commenced investments in business automation which will see the company cut on operational inefficiencies despite the uncertainty around digital migration since the start of 2014. The management recommended a DPS of KES 0.50 (Dividend Yield- 1.23%) with the book closure date set to be confirmed at a later date.