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Kalkine Daily 09/02/2015 + Fairfax Media

Feb 08, 2015

| Read Time :10 Mins

In today’s daily we have covered stock research on Fairfax Media (Expensive).

The S&P 500 was down by 7.05 points or 0.34% to 2055.47 on Friday. Wall Street stocks fell on Friday as a better-than-expected U.S. jobs report raised expectations that the Federal Reserve will increase interest rates by midyear, while renewed worries over Greece's debt negotiations added to the bearish tone. The S&P 500 index of utilities often used as a bond proxy by investors in a low-rate environment, fell 4.1 percent, its biggest daily drop since August 2011, as U.S. government debt yields jumped.

For the week, the S&P 500 was up 3 percent, its best weekly gain since December, while the Nasdaq was up 2.4 percent. US employers created 257,000 jobs last month, easily beating forecasts, while the November and December readings were revised upwards. Payrolls have now risen by more than 200,000 for 11 successive months, and — crucially — signs of wage inflation have begun to emerge. Average hourly earnings rose 0.5 per cent in January, after a modest contraction at the end of last year, taking annual wage growth to 2.2 per cent, the most in five months.

S&P 500 Daily Chart (Source – Thomson Reuters)

S&P ASX 200 was up by 9.2 points or 0.16% on Friday and closed at 5820.2 points. Over the week, Commonwealth Bank of Australia rose 4 per cent to $92.98, while Westpac Banking Corporation added 7.3 per cent to $36.96. Australia and New Zealand Banking Groupgained 5.8 per cent to $34.90, and National Australia Bank added 4.4 per cent to $37.21. On Friday, the big banks were mixed, with Commonwealth Bank of Australia and ANZ Bank slipping slightly, while Westpac rallied 1.4 per cent and NAB gained 0.7 per cent.

The resources sector joined the rally despite the plunging iron ore spot price, down 4.2 per cent to $US62.21 per tonne. Resources giant BHP Billiton added 7.8 per cent to $31.55, main rival Rio Tinto gained 5.3 per cent to $60.60 while iron ore miner Fortescue Metals Group added 7.6 per cent to $2.54. The biggest food and liquor sellers also lagged behind banks and miners in this week's rally. Woolworths added 2.4 per cent to $32.54, whileWesfarmers, owner of Coles Supermarkets, added 2.7 per cent to $44.77.

CBA Daily Chart (Source – Thomson Reuters)

Top Performers on the ASX 200 were :-

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Fairfax Media (Expensive)

FXJ has acquired the remaining 50% of Metro Media Publishing Holdings (MMPH) for the total consideration of $72m, comprising 68.5m shares at $0.78 to be issued to existing MMPH co-shareholders and $18.5m in cash. MMPH owns majority interests in 15 Victorian real estate and lifestyle publications and reviewproperty.com.au. FXJ disclosures suggest MMPH FY14 revenue of $71m and EBITDA $14m.

Fairfax Reach (Source - Company Reports)

The business is on track for continued strong growth and we expect the acquisition to be slightly EPS accretive in FY15. Longer term the transaction delivers more significant strategic benefits with FXJ looking to more closely align interests with that of the real estate agent industry. FXJ plans to rollout an agent equity model nationally in the next 12 months which will incentivize uptake of Domain and reviewproperty.com.au products potentially via profit share with agents.

Masthead Readership (Source - Company Reports)

Management has executed well on recent initiatives (digital subscriptions, closure of print sites, APN Deal and recent JV with NEC) and growth in both Domain and Events is encouraging. Domain group revenue are up 21% year to date with Domain digital up 35%, and events revenues are up 30% year to date. However bulk of the business (ACM, metro publishing, NZ media) still faces structural pressures and radio momentum is currently negative.

Fairfax Media Daily Chart (Source - Thomson Reuters)

The majority of Fairfax’s revenues are advertising based and as a result the group is highly leveraged to the state of the ad markets in New Zealand and Australia. Ad markets in the recent years have been short and weak. However we believe print cover price increases, launch of new compact editions and paywalls may provide a degree of circulation revenue offset. Long term profitability will depend eon the extent Fairfax is able to monetize its contents and assets online, and cost out execution. We believe the stock is expensive at the current price and would review the stock at a later date.

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