Southern Cross Media Group Limited

 
Tepid FY20 Guidance of Negative Bottom-line: Southern Cross Media Group Limited(ASX: SXL)operates in the creation and broadcasting of content on free-to-air commercial radio such as AM, FM and digital as well as in television and online media platforms across Australia. On 18 October 2019, SXL announced that it has proposed to acquire the Western Australian regional radio business named, Redwave Media of Seven West Media Group Limited for the cash consideration of $28 million, which denotes FY19 Enterprise Value/EBITDA multiple of 8x.
 
FY19 Performance Highlights for the year ending 30 June 2019: SXL reported its full-year FY19 results, wherein the Company posted revenue at $661 million, up 0.5% from FY18 and underlying net profit after tax at $76.2 million, grew ~3.1% on y-o-y basis. The Company reported EBITDA at $147.4 million, declined from $158.4 million on FY18, including $9.2 million non-cash expenses, related to outsourcing of transmission services and $3.3 million in restructuring expenses. The Business reported a growth of 2.4% in audio sales, aided by a decent rise of 9.2% in national revenues. In the television segment, the Company witnessed 3.9% growth in the fourth quarter, primarily driven by the federal election. During FY19, the Company reduced its net debt to $292.6 million from $303.9 million on the previous financial year.


FY19 Income Statement Highlights (Source: Company Reports)
 
The Company distributed a fully franked dividend of AUD 0.04000 per ordinary share, and the stock has a dividend yield of ~8.96% on annualized basis at CMP of $0.885.

Guidance: The Company has guided that introduction of AASB16 leases, together with outsourcing contracts for playout and transmission services are likely to impact FY20 Company’s Business. As per AASB16 (Leases), the Company expects $15 million higher EBITDA in FY20. The company also forecasted $3 million of net loss during FY20. On back office outsourcing basis, the company is expecting a CAPEX of $5 million during FY20.

Stock Recommendation:The stock of SXL is quoting at $0.885 with a market capitalization of ~$665.2 million. The stock is trading at the lower band of its 52-week trading range of $0.845 to $1.430. The stock has delivered negative returns of 32.68% and 28.22% during the last three months and six-months, respectively. The stock is available at an enterprise value to sales multiple of 1.5x on trailing twelve months basis (TTM) as compared to the industry median of 1.0x. The Company is expecting a $3 million net loss on AASB16 (Leases)basis in FY20. Considering the aforesaid facts, stock price movement, valuation and FY20 guidance, we have a wait and watch stance on the stock at the current market price of $0.885, up 2.312% on account of the proposed acquisition of Redwave Media as on 18 October 2019.
 

Seven West Media Limited

Strategic Collaborations to Aid Business Growth: Seven West Media Limited (ASX: SWM) operates in free to air television broadcasting along with newspaper and magazine publishing, as well as online and radio broadcasting.On 18 October 2019, SWM announced its two strategic collaboration with Prime Media Group Limited (ASX: PRT) and Southern Cross Media. As per the announcement, SWM is merging with PRT through a 100% scrip-based Prime scheme of arrangement, which is expected to be implemented during January 2020. On the other hand, SWM is selling its radio assets to Southern Cross Media for a consideration of $28 million, which denotes FY19 Enterprise Value/EBITDA multiple of 8x.
 
FY19 Operating Highlights for the year ending 29 June 2019:  SWM announced its full-year FY19 results, wherein the Company posted revenue and other income at $1,556.5 million as compared to $1,621.1 million on FY18, followed by a net loss of $444.4 million as compared to a profit of $132.8 million in previous financial year. The Company reported a loss on account of the inclusion of significant items of $611 million during FY19. The Company’s EBITDA at $243.6 million, reporting a 10.1% decline from FY18, while the EBITDA margin stood at 15.6% as compared to 16.7% on the previous financial year. During the year, the business reported an increase of ~0.7% in revenue share to 38.8% in a soft macro scenario. AFL’s audience grew by ~10% on Y-o-Y basis.
 
 

FY19 Income Statement Highlights (Source: Company Reports)
 
Outlook:As per the Management guidance, the business is likely to establish its footprints as awholly- owned commercial premium broadcast player in video and news network across Australia which will reach over 18 million people on a monthly basis.

Stock Recommendation: The stock of SWM is quoting at $0.385 with a market capitalization of ~$573.05 million. 52-week trading range of the stock stands at $0.350 to $0.927, and the stock is currently treading near the lower band of its 52-week trading range. The stock has delivered negative return of 13.64% and 28.97% during the last three months and six months, respectively. The stock is available at an Enterprise to Sales multiples of 0.7x on TTM basis as compared to the industry median of 1.3x. The business is expected to enhance its footprint from the ongoing collaborations. The company intends to maximise the return on the content investment through every window and overseas sale and has successfully achieved revenue share to 38.8% and ratings share to 40.3% across the day. Considering the aforesaid facts, merging announcement, stock price movements, valuation metric and business prospects, etc., we recommend a ‘Hold’ rating on the stock at the current market price of $0.385, up ~1.316% as on 18 October 2019.

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.