Southern Cross Media Group Limited

SXL Details

Growth in Digital Audio Market & Radio Market in 1HFY22 (Ended 31 December 2021): Southern Cross Media Group Limited (ASX: SXL) undertakes audio content creation and distribution via broadcast on (FM, AM, and DAB radio), and digital networks.

• The audio revenue increased by ~11.5% Y-o-Y to ~$193.8 million in 1HFY22 due to robust metro (~13.8% Y-o-Y), regional radio (4.9% Y-o-Y), and digital audio (~36.8% Y-o-Y) markets. SXL continued to adopt digital first workflows to improve its customer experience and derive a more efficient operating model.
• The LiSTNR business has achieved over ~500,000 signed-up users on pcp due to the expansion of premium library content, strong brand recognition, and investment to scale up.
• The operating expenses were reduced by ~2.6% YoY to ~$213.3 million primarily due to a decline in the revenue-linked expenses from ~30% to ~25% of revenue.

Comparative Key Metrics of 1HFY21 & 1HFY22; (Analysis by Kalkine Group)

Key Risks: The company faces technological changes, demand from audio, TV, and digital markets, COVID-19 uncertainty, the slowdown in advertising spending.

Improved Outlook & Operations:

• As the television market segment continues to perform, SXL expects 2HFY22 revenue generation like that of 1HFY22 due to improved market conditions in Q4FY22 and higher business confidence and increased advertising expected for the Federal Election.
• SXL plans to focus on core markets and formats to maximise ratings, revitalise maturing formats, and leverage the improving mobility trends in key markets.
• The digital audio market and the radio markets are anticipated to expand in the next 12 months offering growth avenues.
• SXL plans to grow investment in its digital audio strategy to increase audiences and revenue avenues. Cash interest on net debt is expected to be ~$3.5 million in FY22 versus ~$7.9 million in FY21.

Valuation Methodology: P/E 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 stock of SXL gave a negative return of ~16.79% in the past three months and a negative return of ~19.41% in the past six months. The stock is currently trading near its 52-weeks’ low level of $1.565. The stock has been valued using the P/E based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median P/E multiple, considering the impact on 1HFY22 EBITDA, NPAT, and COVID-19 related disruptions, and planned investment in core system improvements. For this purpose of valuation, a few peers like Nine Entertainment Co Holdings Ltd (ASX: NEC), HT&E Ltd (ASX: HT1), Ooh!Media Ltd (ASX: OML) have been considered. Considering the current trading levels, reduction in debt levels, an increase in audio revenue, plans to invest in sales system improvement & digital product, expected reduction in the cash interest costs and indicative upside in valuation, we give a ‘Buy’ rating on the stock at the closing market price of $1.660, up by 0.302%, as of 14 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

SXL Daily Technical Chart, Data Source: REFINITIV 

RMA Global Limited

RMY Details

Director’s Change of Interest: RMA Global Limited (ASX: RMY) offers online real estate agent data, their ratings, and reviews via its online platform service. It operates in the US, Australia, and New Zealand. On 8 March 2022, Director, David Williams acquired ~800,000 ordinary shares at ~$0.18 per share for ~$144,000 in RMY.

1HFY22 (Ended 31 December 2021) Results:

• Revenue increased from ~$4.76 million in 1HFY21 to ~$7.09 million in 1HFY22, up by ~49% Y-o-Y across all geographies and products.
• The agent profile reviews and claims grew significantly across regions, especially in the US where reviews increased by ~189% on 2HFY21 in 1HFY22. RMY plans to invest in increasing review volumes via automation of the review collection process, improved platform integrations, and agent profile display on Facebook, Google, Instagram, etc.

Debt & Liquidity Position; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of a volatile employment market leading to increased staff churn and costs. RMY faces the risk of an increase in technology costs due to a rise in semi-variable costs of data storage and web traffic fees.

Outlook:

• In FY22, RMY focuses to develop products to increase agents’ network and engagement with potential customers, enhance revenue streams in Australia & New Zealand (ANZ). In the US, it plans to expedite monetisation of the customer base as it has a huge addressable market in the country.
• RMY targets to become cash flow positive in CY22 and might re-examine capital adequacy position if the subscription growth rates in the US are lower than expected.

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 stock of RMY gave a negative return of ~11.90% in the past three months and a negative return of ~13.95% in the past six months. The stock is currently trading below the 52-weeks’ average price level band of $0.160 - $0.320. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean EV/Sales multiple, considering the continuing trend of negative net margins, negative ROE, risk of increased staff churn, and technological costs. For this purpose of valuation, a few peers like Rent.com.au Ltd (ASX: RNT), Airtasker Ltd (ASX: ART), Hipages Group Holdings Ltd (ASX: HPG), and others have been considered. Considering the low trading levels, growth in subscription revenues, agents, and their profile reviews on the platform, plans to monetise the US customer base, become cashflow positive, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.185, down by ~2.632% as of 14 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

RMY Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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