Company Overview: HT&E Limited (ASX: HT1), formerly known as APN News & Media Limited, is engaged in the business of media and entertainment with a presence in Australia and Hong Kong. It operates under the following reportable segments – Australian Radio Network: Comprises of metropolitan radio networks, on-demand radio and streaming and podcasting; HK Outdoor: Billboard, transit and outdoor advertising in Hong Kong; Digital Investments: Includes stake in Emotive Pty Limited and investments in Soprano Design Pty Limited.

HT1 Details

Execution of Strategies Underpinned by Delivering Results: The company has reported improved demand in the advertising market, after the initial onslaught of the impact of COVID-19 on the economy and its operations. It was able to tide through the period by maintaining its strategic focus and investing in its digital audio growth strategy.

Traction in Advertising Market:

• Increased Demand: The company has witnessed increased traction in the radio market in recent times and is of the belief that the relevance of the radio market remains decent in the long run.
• Leading Company in Australia in the ARN Segment: It is one of the leading audio companies in Australia in terms of commercial business scale and ratings, in the ARN segment.
• Delivers Engaging Content: It provides an integrated platform to advertisers along with unique and engaging content across radio, music, streaming and podcasting.

HT1 believes that there will be further consolidation in the media markets. With its deep domain expertise and media experience, the company’s management will continue to look for opportunities in order to maximise shareholder value.

Update on FY20 Performance:

During the year, the company reported revenues of $197.3 million and an underlying NPAT of $18.5 million, before exceptional items. The company’s operations got impacted due to the onset of the COVID-19 pandemic, which impacted the advertising spends during the period. Given the circumstances, the Group adopted a prudent cost management approach where a one-off cost measure contributed to ~$13 million of savings. In FY20, revenue contribution from Australian Radio Network (ARN) stood at ~89% of the total revenues, HK Outdoor at ~8% and Digital Investments at ~3%. Soprano Design Pty Limited, where HT1 has got ~25% equity interest, performed decently during the LTM 2020 period, with continued growth in revenue and EBITDA to $75.6 million and $25.5 million, respectively.

FY21 Trading Update:

ARN:

• On the back of improvement in the advertising market in Q1FY21, total revenues were back ~2.5% on the prior period. Revenues in March 2021 was tracking ahead of March 2020.
• It reported an increase of over 53% in revenues in April 2021, when compared to the prior corresponding period.
• There have been forward bookings during the Q2FY21 period, demonstrating the strong rating performance of the business.
• Q1FY21 digital audio revenues grew by over 180% on the prior period, on the back of growth in consumer demand for podcasts and the momentum is expected to continue further.

Hong Kong:

• The company reported Q1FY21 revenues to be marginally ahead of the prior corresponding period.
• Delivered improved revenues in April 2021.

Decent Balance Sheet: HT1 has maintained a strong balance sheet with a net cash position of ~$112 million as of 31 December 2020 and with access to over $250 million in funding facilities. The cash and short-term investments stood at $115.1 million as 31 December 2020. The total debt was reported at $46.6 million during the same period end and comprises of $32.2 million in long term debt and $14.3 million in short term debt.

Trend in Cash and Short-Term Investments (Source: Analysis by Kalkine Group)

Agreement to Sell Soprano:

On 18 May 2021, the company has announced that the shareholders of Soprano Design Limited, have signed a non-binding term sheet to sell its 100% stake in Soprano to Link Mobility Group Holdings AS.

• The transaction has been valued at ~$560 million, through a combination of cash and equity.
• HT1 has ~25% stake in Soprano Design Limited, which translates to ~$139 million from the proposed deal. The amount will consist of $6.2 million cash upfront from LINK, and shares amounting to ~6.15% stake in the combined business entity of Link and Soprano.
• The due diligence and binding share purchase agreement is expected to occur in the month of July 2021.
• The primary objective of HT1 is to maximise its shareholder value and strengthen the balance sheet with the sale of its stake in Soprano.

Change of Interest in the Company:   As per a recent update, PERPETUAL LIMITED and its related bodies have undergone a change of interest in the company and has increased its voting power to 14.28%, representing 39,542,587 ordinary shares.

Top 10 Shareholders: The top 10 shareholders together form around 72.72% of the total shareholding, while the top 4 constitute the maximum holding. Allan Gray Australia Pty Ltd and News Pty. Ltd.  are holding a maximum stake in the company at 21.88% and 15.13%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:    There was an improvement in the current ratio to 3.63x in FY20, from a level of 2.89x in the previous corresponding year. Cash cycle stood at negative 469.8 days during the period.  

Profitability Metrics and Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:  HT1 is prone to the following risks:

• Interest Rate Risk: The company is exposed to interest risk through its cash and equivalents, deposits and presence of borrowings in the balance sheet.
• Equity Price Risk: The Group is exposed to equity price risk, given its equity investments in listed securities.
• Losses from Operations: HT1 has reported losses in the last couple of fiscal periods, and this poses a risk in terms of profitability. The Board has also decided to suspend the dividends in view of the uncertain economic environment.
• Impact of COVID-19: Its operations got impacted due to the COVID-19 impact, and the presence of the pandemic still lingers on and can impact the performance of the company.

Outlook: The company believes that the advertising sentiment for the radio segment remains resilient, despite the COVID-19 impact on the sector. It is focussed on diversifying its revenue model and expand the audience footprint. It will also look to create localised content in H2FY21 and launch new products in the podcast segment. HT1 will invest in capability and look to provide creative solutions for advertisers.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company has acquired a 4.7% stake in advertising company, oOh!media in FY20 for $18.1 million. During the year-end, it reported that the stake was valued at $45.9 million, reflecting a gain of $27.8 million. As per ASX, the stock of HT1 is trading below its average 52-weeks’ levels of $1.070-$2.100. The stock of HT1 gave a positive return of ~11.26% in the past nine months and a negative return of ~8.42% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the impact of COVID-19 on its operations, stiff competition, negative profitability in FY20, and decline in top-line. For this purpose, we have taken peers such as Nine Entertainment Co Holdings Ltd (ASX: NEC), Ooh!Media Ltd (ASX: OML), Aspermont Ltd (ASX: ASP), to name a few, which comes under media sector. Considering the expected upside in valuation and current trading levels, increased traction in the advertising space, decent trading performance in Q1FY21 & Q2FY21, decent balance sheet and the key risks associated with the business (as stated above), we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.575, up by 0.63% (as on 13 July 2021, 10.:50 AM (GMT+10), Sydney, Eastern Australia).

HT1 Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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