Stock of the Day – Southern Cross Media (SXL)

SXL downgraded its FY14 outlook given ratings/revenue share pressure at its Metro Radio/Regional TV businesses. SXL guided to a 10% decline in underlying NPAT versus the previous corresponding period. Main drivers of the downgrade were: 1) Ratings decline in Regional TV & Metro Radio. 2) Softer advertising market conditions. 3) Higher costs with increased advertising/promotion costs in metro radio and the higher regional TV affiliate fee.


SXL Reach  (Source – Company Reports)

The loss of Kyle/Jackie O on the Today Network and the weaker ratings of a number of the new breakfast shows has put pressure on the 2H14 Metro radio revenue. While SXL has strong track record on cost control, in FY14 management are reinvesting recent cost savings back into content and Advertising/Promotion costs given the recent programming changes.  


SXL Brands (Source – Company Reports)

TV ratings for Channel 10 product have failed to recover since the improved start to CY14, assisted by the Big Bash/Winter Olympics. In the 2014 ratings YTD, SXL’s ratings declined -0.4% (18.2%). The challenging ratings performance of SXL’s regional TV network has coincided with soft ad market conditions in SXL’s main advertising markets.


SXL  Daily Chart (Source – Thomson Reuters)

While historically SXL has demonstrated strong cost control, management indicated that they would be reinvesting recent radio cost savings back into content and Advertising/Promotion costs given recent programming changes. In 1h14, SXL increased Metro Radio expenses by +6%, management indicated a similar level of expenditure in the 2H. SXL’s gearing remains towards the higher end of the Australian Media sector universe. We put a HOLD recommendation on the stock at the current price of $1.145.

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