Nine Entertainment Co. Holdings Limited

NEC Details

 Notice of Substantial Shareholder: Nine Entertainment Co. Holdings Limited (ASX: NEC) is a media firm operating core segments of Digital and Publishing, Broadcasting (BVOD), Domain, and Stan. In a recent update, the company informed the market that FIL and the entities, have become a substantial holder of the company, with a voting power of 5.01%.

Purchase of Exclusive Broadcast Rights: NEC recently signed a contract to purchase the broadcast rights for National Rugby League (NRL) for the 2023-2027 seasons.

Trading Update During the AGM Presentation:

• NEC reported a ~20% YoY increase in revenues from the metro free to air (FTA) advertising in Q1FY22 (30 September 2021). The market conditions are reported to remain healthy in Q2FY22 with some impact of change in the timing of the major sporting event.
• 9Now, part of the broadcasting division experienced growth in live streaming volumes (more than doubled) and digital video advertising in Q1FY22. It is expected to maintain positive momentum in FY22.
• NEC reported growth in the subscriber base at Stan Sport in Q1FY22 led by the COVID-19 lockdowns. Alone UEFA season is expected to drive earnings on a run-rate basis by the FY22-end.
• The publishing division witnessed growth in subscription and licensing revenues. The digital subscription revenues grew by ~10% on pcp in Q1FY22.
• The underlying property market conditions are reported to be strong for the Domain division with positive trading results in Q1FY22, despite the COVID-19 lockdowns in Melbourne & Sydney. The digital revenue rose by ~18% YoY in Q1FY22.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of extended lockdowns, change in advertising market conditions, & property, access to premium content, and peer competition.

Outlook:

• NEC expects EBITDA before specific items to grow by ~10% on 1HFY21 for 1HFY22 and focuses on digital growth across its traditional media businesses.
• The company expects the metro FTA ad revenue to grow by over ~6% on 1HFY21 and the Stan division to deliver a low double-digit million-dollar EBITDA in FY22.
• The EBITDA guidance for the publishing division is upgraded to ~$40 - $45 million for FY22 versus ~$30 -$40 million stated previously.

Valuation Methodology: EV/EBITDA 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 NEC gave a positive return of ~6.76% in the past three months and a positive return of ~19.83% in the past year. The stock is currently trading above the 52-weeks’ average price level band of $2.270 - $3.160. The stock of NEC has a support level of ~$2.680 and a resistance level of ~$3.500. The stock has been valued using the Enterprise Value to EBITDA based illustrative relative valuation method and arrived at a target price with a correction of a high- single-digit (in % terms). The company might trade at a slight premium than its peers’ average EV/EBITDA multiple, considering the business momentum across the divisions, robust underlying advertising market conditions across all ad segments, and expected growth in EBITDA for 1HFY22. For this purpose of valuation, few peers like HT&E Limited (ASX: HT1), News Corp (ASX: NWS), Prime Media Group Limited (ASX: PRT), and others have been considered. Considering the current trading levels, decent returns in the past three months and the past year, the indicative downside in valuation, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $2.970, as of 5 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

NEC 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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