Top Stocks ASX 200 :-

Get up to 2 Years of free subscription by inviting your friends to KALKINE!

For every friend of yours who joins KALKINE, we'll give you 3 months of free subscription (up to a limit of 24 months free subscription). If you recommend 3 friends and they join within a month of you referring them, you get 1 year free subscription to KALKINE reports added to your account (up to a limit of 24 months free subscription). Simply reply to this email with their name, e-mail and phone number.
 

APN VIDEO



 

Stock Of The Day - APN News & Media (EXPENSIVE)

In today’s daily we cover APN News and Media Limited (APN), which is a media entertainment and technology company with assets in Australia, New Zealand and Hong Kong. In Australia, APN owns the leading radio business network, Australia Radio Network (ARN). In March 2015, NewsCorp announced that it will be increasing its stake in APN to 14.99% subject to regulatory approval. We also noted about the sale of shares in APN by two major shareholders, namely, Independent News and Media (INM) and Baycliffe at $0.88 per share in a block trade. The Company reported that the sale of about 30.8% of APN’s capital is a strong endorsement of growth trajectory and potential.




Results Highlights (Source – Company Reports)

The Company reported to have raised an equity of $132 million which along with the sale of APN Outdoor helped APN to acquire 50% of ARN and The Radio Network (TRN) in New Zealand. Acquisition of 96FM in Perth with an integration into ARN provided five capital city FM radio offering. The Company also aims to explore opportunities in South East Asia given the kick-start acquisitions in Hong-Kong.

APN’s revenue has moved up from 817.2 to 843.3 million in 2014 indicating a growth of only 3.1%. EBITDA has also just increased from 162.8 to 164.1 million in absolute terms reflecting a percentage growth of only 0.79%. Thus, the statistical track record of the company does not warrant an extraordinary growth. Net Margin of the company was 1.36% in 2014 and operating margin (EBIT/Sales) was 2.74%. These margins do not reflect a very high profitability. Net profit margin was 3.36% in 2013 while EBIT was 9.24% in the same year, indicating that profitability has declined over the last year. The leverage ratio (assets/equity) was 2.39 in 2014. Another way to look at the leverage is that the debt to equity ratio of the company was 1.39. The same set of ratios were 2.05 and 1.05 in 2013. This means that the gearing of the company has increased in 2014 as compared to 2013 not in line with what APN had committed towards debt reduction.


Australian Radio Network (Source – Company Reports)

Net cash flows from operating activities declined from 88 million dollars to 72 million dollars, largely on account of a decline in receipt from customers. A straightforward explanation about the decline in receipts from customers was not to be found in the management summary. Proceeds from borrowings were 865 million dollars which were higher than repayment of borrowing at 793 million dollars. This does not appear to be in consensus with APN’s claim that the Company is determined to reduce its debt.


Financial Performance (Source – Company Reports)

Performance by ARN has been stupendous with 18% rise in revenue for the year and 28% rise in 2H, in comparison to growth in radio market of 3% and 5% respectively. The rebranding of Mix station to KIIS 1065 and repositioning of WSFM to Pure Gold in Sydney indicated good performance by ARN. Melbourne Mix station was also re-launched as KIIS 101.1 along with a brand replication in Adelaide and Brisbane. The New Zealand businesses, APN NZ Publishing, TRN and GrabOne were re-launched under one umbrella as New Zealand Media and Entertainment (NZME). However, the total revenue and EBITDA have been down 6% and 11% respectively for NZME. Poor performance for publishing and e-commerce pulled down the earnings growth in radio. We also note 15.8% year-on-year growth experienced by Australian Regional Media (ARM) given the audience base. However, ARM also witnessed a drop in EBITDA and revenues.  APN expects to have better production efficiencies and cost-cutting from the closure of ARM’s Toowoomba printing facility. Strength in outdoor advertising industry in Australia and Asia facilitated Adshel to be positioned well for 2015. Increase in iHeartRadio live experiences and growth in revenues drove the digital segment.


Adshel Performance (Source – Company Reports)

It is noteworthy that APN has not revealed much in its outlook for 2015 which gives a hazy picture about its plan for investments and operation. Also, a lot of transactional activity has affected the balance sheet in 2014.


Business Summary (Source – Company Reports)

The company has not paid any dividend in the last two years and the dividend declined per share from $0.105 to $ 0.065 during the period 2011 to 2012. APN stated that the reason of not paying the dividend lies behind company’s commitment to reduce debt and improve the balance sheet. Over a period of 5 years, the record has been more dismal with profit attributable to shareholders dropping from $98.2 in 2010 million to $74.7 million in 2014 and basic EPS declining from 14 in 2010 to 7.6 in 2014.


Total South East Asia, China and Hong Kong Market Growth (Source – Company Reports)

Through NZME, APN aims to capture revenue as well as cost synergies based on the integration effort. Nonetheless, it seems that APN’s strategy has been compelled by the need of diversifying out of the publishing business and acquiring more growth assets, which may prove to be a drag on the profitability. APN stated that any partial divestment of NZME is some time later and would be subject to market conditions. The company also admits that it is operating in extremely competitive segments and media business remains subject to many challenges. Radio and outdoor are cited as growth assets of the company, yet they currently account for about 60% of company’s revenue. A substantial part of earnings is still dependent on publishing industry and the digital accounts for only 7% of company’s revenue.


APN News & Media (Source - Thomson Reuters)

Given the entire scenario and mixed sentiments, no dividend yield, high amount of interest bearing debt on the balance sheet and compulsion to acquire new assets as a growth strategy, we believe that the stock is EXPENSIVE at the current price of $0.93.