Towards streaming and content

STV continues to be viewed as a mature broadcaster, yet it is transforming into a growing streaming and production business. We see continued double-digit growth prospects in these areas, together with a resilient broadcast business, and calculate five-year growth of 7% pa in revenue / 10% pa in operating profit for the group (FY23E-FY28E). Near-term economic pressures are factored into current EPS estimates, but should also drive eyeballs towards STV’s free AVOD service. Current valuation (7.6x FY23E EPS / 4.3% dividend yield) looks modest given the longer-term potential.

Towards streaming and content

RBG is a unique provider and consolidator of high-margin professional services businesses. Strong growth in FY21 and solid trading performance reported in July provides clear evidence that RBG’s strategy and commercial approach are delivering. The acquisition of Memery Crystal has added significant scale and breadth to RBG Legal Services (RBGLS), and we expect further selective M&A. Given RBG’s better business mix and high returns from contentious work, we see good support for margins. In our view, the current discount to peers is unjust given forecast growth, both organic and through bolt-ons. In addition, we believe the significant upside potential from contingent work and litigation finance, both in-house and third party (LionFish), is not reflected in the share price.