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.
 

Seven West Media Video



 

Stock Of The Day - Seven West Media (BUY)

Seven West Media Ltd (ASX: SWM) was in the news on 29 April 2015 as it entered a trading halt when it announced that it would undertake a capital raising of $150 million. The fresh capital is required to compensate for soft free-to-air television and print media advertising revenues, reducing the company's debt load and allowing it to continue investing in order to retain its market leadership in the free-to-air TV business. It is easy to understand the resource constraints considering that the company competes fiercely with rivals Nine Entertainment Co Holdings Ltd (ASX: NEC) and Ten Network Holdings Limited (ASX: TEN) in the quest for viewership and advertising revenues. The company is also competing in the digital business with its online news service Yahoo7 and the launch of online streaming service Presto. The attempt to capitalise on the shift on the part of viewers to online viewing faces stiff competition from the giant US streaming service Netflix as well as other domestic rivals. The most attractive part of the business remains the Channel 7 TV operation with its lucrative advertising revenues.

The recent update on institutional entitlement offer with commitments of about $289 million in excess of $150 million has been pleasing. There has been a good response from institutional shareholders to the proposed transaction which may also lead to a strong balance sheet and an early resolution of Convertible Preference Shares. 


Half Year Highlights (Source: Company Reports)

The interim results for the half year ended 27 December 2014 gave the evidence that the company is building on its television audience delivery leadership position when it achieved another advertising revenue performance underlining its market leadership. In an extremely difficult and competitive environment, the publishing business was also able to outperform its business peers. The company was also able to maintain strong margins which are among the best in the business in all significant media businesses and the result was cash flow generation from operations before interest and tax in excess of $250 million.


Income Statement (Source: Company Reports)

The underlying net profit was $137.5 million on revenues of $943 million, slightly below the indication at the AGM, although there was a statutory net loss of $993.6 million on account of the impairment of goodwill, the reduction in the carrying value of the publishing business as well as redundancy and restructuring costs. The total value of this charge was $1.148 billion made up primarily on account of impairment of goodwill including $960.9 million for the television business, $65.7 million on account of newspapers and magazines, $30.4 million on account of newspaper and magazine mastheads and licenses, $26.5 million on account of equity investees and $56.6 million on account of restructuring costs and onerous contracts. EBITDA came to $250.7 million and EBIT to $226.9 million. The company declared a fully franked dividend of 6 cents per share and, on the basis of the current outlook, the board intends to maintain the dividend at 12 cents per share for FY 2015.

The company is building up its presence in new forms of delivering content such as the Presto partnership, the successful launch of Hybrid Television, and live sports streaming. The focus on disciplined and stringent cost management will continue because it has already resulted in a 1.3% decline in total costs during this half year.
 
As per SWM, Performance in the half-year under review was stronger than the advertising market as a whole.


Performance (Source: Company Reports)

For FY 2015 market outlook as a whole, the company expects a slight decline in TV advertising while magazines will experience a more favourable trend and the present trend can be expected to continue in the case of newspapers. Leadership in the TV advertising segment continued during the half-year with a market share of 40.4% while market share in digital and magazines is expected to continue to grow. The company has reaffirmed its guidance for 1% cost growth in the group during FY 2015 and underlying profit should be in line with market estimates.


Metro FTA TV Advertising Revenue Market Share (Source: Company Reports)

The group aims to maintain its leadership position by providing the best content using economies of production scale, partnerships and acquisitions. It will make the best use of platforms to attract viewership for its content while providing digital offerings across all devices. The operating model has been transformed and a new management structure is now in place. New growth will be fuelled by expanded distribution and partnership, building a large portfolio of life events and using existing revenue streams to build new revenue streams. As part of the new management, Ryan Stokes, presently the Chief Operating Officer, will take over as CEO as the current CEO Don Voelte retires at the end of August 2015.Voelte will relinquish all existing directorships but continue to remain as a consultant on an exclusive basis. Stokes is regarded as an accomplished and highly capable executive who believes that, despite the existing difficult conditions, the group is in good shape for the future.
 

SWM Daily Chart (Source - Thomson Reuters)

Regardless of the headwinds across various businesses, we believe that the company and the group will continue to do well because of the strong leadership position and the ability to have growth with increased market share. In fact, we believe that the fall in the share prices over the last year provides a window of opportunity to acquire shares which we believe are currently undervalued. We thus put a BUY recommendation for the stock at the current price of $1.315.