Seven West Media Limited

SWM Details

FY21 Financial Performance

Rising Revenue: SWM reported $1,270 million in revenue, up by 4% YoY. Primary drivers include a rebound in the broadcast TV advertisement market, up by 25.8% in H2FY21 and 11.5% in FY21. 7plus revenue inclined by 78% with BVOD advertisement market growth of 55%.

Improved Operating Metrics: EBITDA inclined by 105% YoY and stood at $254 million, and EBIT inclined 141% and stood at $229 million. NPAT enters a positive zone with $318.1 million in profits. The favourable results came forth due to a 17.6% decline in expenses (including depreciation) and surged top-line.

Financial Position: Net debt declined by 40% and stood at $240 million. Operating cash flow (excluding interest and taxes) stood at $201.0 million, up by 146.8%. Improved balance sheet paves the way for debt facility refinancing, capital management alternatives, or consolidation opportunities.

FY21 Financial Snapshot; Analysis by Kalkine Group

Key Risks

• Interest Rate Risk: SWM holds interest-bearing liabilities. Thus, any severe change in interest rate may lead to financial losses for the company.
• Regulatory Risk: SWM requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in liabilities for the company.

Outlook

Expansion Expectations: Digital and data transformation accelerated with the potential to double earnings in FY22. Seven West Ventures portfolio value inclined by 11% and stood at $56 million with multiple new investment pipelines.

Broadcast Positioning: FY22 may benefit from significant sports events with the entire content schedule. SWM focuses on improving the prime-time entertainment rating and strengthening Q3 ratings with new content.

Commercial Targets: In FY22, SWM aims an incremental $7 million in net cost savings. Capex for the year is estimated to be ~$40 million towards revenue related capex initiatives and news co-location projects. Cash outflow in one-off contracts is estimated to clock ~$41 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation

The stock of SWM gave a positive return of ~243.75% in the past one year. The stock is currently trading higher than the 52-weeks’ average price level band of $0.105 - $0.590. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, considering the potential impact of COVID-19 on content production activities. For valuation, few peers like Prime Media Group Ltd (ASX: PRT), Enero Group Ltd (ASX: EGG), Southern Cross Media Group Ltd (ASX: SXL) have been considered. Considering SWM’s entry into a positive profit zone, modest cash balance, investment pipelines, current trading levels, and valuation, we give a “Speculative Buy” recommendation on the stock at the market price of $0.410, up by ~1.234% as of 23 September 2021.

SWM 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.