Nine Entertainment Co. Holdings Limited

New Nine with 55% Revenue from Broadcasting, Sold ACM: Nine Entertainment Co. Holdings Limited (ASX: NEC) is engaged in the television broadcasting and program production & digital, internet, subscription video, and other media sectors.
Recent Updates:

• The company recently notified that National Australia Bank Limited and its associated entities have become an initial substantial holder of it with the voting right of 5.024%.
• The company also updated that its FY19 results will be announced on 22 August 2019.
• NEC also communicated that it has completed the sale of Australian Community Media and Printing (ACM) to a company controlled by interests associated with Antony Catalano and Thorney Investment Group, as on 30 June 2019. As a consideration, the company has already received cash of $105 million and will also receive a further $10 million within one year. The company will use the fund to pay debt.

1H19 Performance Highlights: On the Proforma basis, the company reported an increase of 6% in Group EBITDA to $252 million, 3% decline in the revenue to $1,204 million and a rise of 5% in the Net Profit After Tax and Minority Interests to $126 million for the period. During 1H19, the company witnessed a significant cost reduction in double-digit, stronger Free-to-Air (FTA) share, a 39% increase in the EBITDA from Digital & Publishing on the back of more than 50% rise in Metro Media and 9Now and reported the flat result from Domain. Further, for the first half 2019, the company has paid a dividend of $85 million, compared to the dividend of $44 million in the corresponding period FY18.
 
Outlook: The company, for FY19, expects 10% growth in the Pro Forma Group EBITDA on a continuing business basis to be at least $420 million, which equates the growth of at least 10% on the FY18 like-basis result of $385 million. The company expects the positive momentum to be continued at the Group level in FY2020. Further, Stan is expected to be EBITDA positive from the fourth quarter of FY19. Broadcasting’s EBITDA is projected to be flat as compared to Pro Forma FY18. The company expects Digital and Publishing to grow in the second half of FY19 and into FY20 on the back of revenue growth and further effective cost management in Metro Media and strong performance at 9Now. The company had successfully merged Nine & Fairfax. The company was expecting to receive $50 million by June 2019 and expects $65 million of the amount by June 2020. After the merger, new Nine emerges with ~55% of topline from Broadcasting & 45% of topline from businesses that are in strong long-term growth markets.

Four Key Drivers in FY20 (Source: Company Reports)
 
Stock Recommendation: The stock is currently trading at a low P/E multiple of 8.73x. The stock has gained a decent return of 39.26% on a YTD basis and has an annual dividend yield of 5.32%. The company has a strategic approach towards core content creating across television and radio, reaching 19 million Australian each week, maximizing share through premium revenue and innovation like 9Galaxy, etc. With aforesaid facts, we maintain our “Buy” recommendation on the stock at the current price of $1.900, up 1.064% as on 23 July 2019.
 

Atlas Arteria Group

Internal Restructuring: Atlas Arteria Group (ASX: ALX) invests in infrastructure assets in Organisation for Economic Co-operation and Development (“OECD”) and OECD equivalent countries; and non-infrastructure assets. The market capitalization of the stock stood at ~$5.38 Bn as of 23 July 2019. The company recently, announced its 1Q19 toll revenue and traffic statistics wherein the weighted average traffic for the quarter was unchanged on pcp whilst there was a 2.3% increase in weighted average revenue compared to the pcp.
 

Toll Revenue and Traffic Statistics 1Q 2019 (Source: Company Reports)
 
The company also updated with its new management, led by ALX’s CEO elect Graeme Bevans. The company has finished its Management Agreements wit h ATLAX, ATLIX, and the Macquarie Group from the end of March. ALX will not pay any performance fee now after 15 May 2019, however, Macquarie has to give specific services to the company under a Transition Services Agreement. This will be provided for fee payment of A$750,000 per month from 15 May 2019 until 31 December 2019. Macquarie will remain as the manager of Atlas Arteria’s interest in APRR and for this, it will receive the fees of EUR 7.4 Mn (approx. A$12 Mn) per annum.
 
The company has projected that the ongoing annualized operational costs for the internalization of the management to be in the range of A$15-20 Mn per annum, excluding the fees at APRR. Further, the company has now two new Directors, David Bartholomew and Jean-Georges Malcor on the company’s board. Moreover, the company had gone through the internalization process for improvement at the operational level, actively management of capital, increasing the distributions and increasing the value of the company’s portfolio.
 
Outlook: The company had confirmed its distribution guidance for FY19 to be 30 cents, which is a rise of 25% on FY18. The company has already distributed 15 cents in the first half of 2019 and will pay the rest 15 cents in the second half of 2019.
 
Stock Recommendation: At the current market price of $7.96, the stock is trading at a higher price to earnings multiple of 89.03x and trading at close to its 52-week high of $8.27. The stock has risen 10.69% in the past 3 months and 30.30% on YTD basis. The company has ~683.26 million shares outstanding with the market cap of $5.38 billion and a beta of 0.68x (5-Year, Monthly). On trailing twelve months (TTM) basis, it reported a higher EV/EBITDA of 34.3x and EV/Sales of 49.7x as compared to the industry median of 24.5x and 15.5x respectively showing that the stock is overvalued. Hence, considering the aforesaid facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $7.960, up 1.144% as on 23^rd July 2019.

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