Following the relatively recent arrival of digital television, there has been a huge increase in the number of TV channels available to anyone who has satellite, cable or even just a Freeview digital set-top box. Broadcasters such as the BBC, ITV and Channel 4 have added several additional digital channels during the past few years, while a number of smaller broadcasters have launched their own, often highly specialised, channels in order to take advantage of the digital TV phenomenon.

While many channels simply broadcast pop videos or repeats of programmes originally aired many years ago, there are a few that require new programmes targeted at the kinds of audiences these new channels are trying to attract (think BBC3 or BBC4). Of course, this means an increase in the trend for outsourcing TV programme production, which is good news for companies like Welsh independent media business Tinopolis.

With its headquarters in Llanelli, Tinopolis is actually a group of companies with production centres in Cardiff, Glasgow, Leeds, London and Oxford. It produces a variety of TV programmes, including drama, current affairs, documentaries and sports programming, as well as interactive content for customers in both the public and private sectors.

Last year, the AIM-quoted group managed to achieve organic revenue growth of around nine per cent in spite of a fall-off in UK commissioning during the latter part of 2007. Pre-tax profits more than doubled to £2.7 million, while net cash flow generated from operating activities increased to £5.7 million from just £1.8 million the year before, prompting house broker Investec Securities to dub the group ‘Cashopolis’.

Tinopolis has done well while others in its industry have been struggling and the immediate future for the group looks very bright indeed. The company has strong revenue visibility with a very high percentage of its planned sales already contracted. Moreover, its wide range of customers and lack of dependence on any one contract mean that the business offers prospective investors some defensive qualities.

One particular contract it will have been pleased to renew is its arrangement with the BBC to produce Question Time. Last year, Tinopolis beat 14 other independent producers to win a new three-year contract worth £5.5 million to produce the flagship current affairs discussion programme.

Elsewhere, Tinopolis continues to produce editions of Channel 4’s Dispatches current affairs programme and coverage of sporting fixtures such as the Grand National for the BBC from 2008, as well as various dramas and docudramas for ITV, Channel 4 and others. In terms of forecasts for this year and beyond, Investec expects Tinopolis to deliver a 96 per cent increase in pre-tax profits to £5.3 million in 2008, increasing by a further 32 per cent to £7 million next year. On a ‘per share’ level, these translate to 3.8p and 5p respectively, which makes the group’s current share price look very cheap – especially when one considers the £11 million net cash (equivalent to 11.5p per share) that Tinopolis had on its balance sheet at the end of September.

Given management’s propensity for share buybacks – with the group having bought back 4.65 million shares last year (at an average price of 39.9p no less) – Tinopolis is an enticing prospect. With the group currently rated, from an enterprise value point of view, at less than four times forecast earnings for this year, we think its shares are well worth buying.

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