Nine Entertainment Co. Holding Limited

 

NEC Details
 
NEC Revises Agreement With NRL: Nine Entertainment Co. Holding Limited (ASX: NEC) is one of Australia’s leading locally owned media company. It is primarily engaged in broadcasting and program production across Free to Air television along with metropolitan radio networks in Australia. On 28 May 2020, the company stated that it has revised contract with the NRL for season 2020, 2021 and 2022. As per the revised contract, NEC anticipates benefiting from P&L, as a result from alterations in rights fee and related production and services arrangements of ~$27.5 million each year in FY21 and FY22. In FY20, the company stands to benefit from the given modified season and expects cash cost guidance to be $225 million, down from $289 million.
 
NEC Enters into a Share Sale Agreement: On 25 May 2020, the company stated that it has entered into a share sale agreement of Stuff Limited, a New Zealand business. The proceeds from the sale is expected to be ~NZ$1. Nonetheless, NEC will maintain ownership of the Petone print plant site which will consequently be leased back to Stuff. The company predicts an associated Specific Item cost to be around A$40-45 million in FY20. The sale of Stuff is likely to be completed by 31 May 2020.
 
Terminated Engagement with NZME: In another update, the company confirmed that it has been in talks with NZME Limited regarding an offer by NZME for Nine’s NZ business, Stuff. Nonetheless, the company has informed that it has terminated additional arrangement with NZME. NZME deems that it is still in a mandatory exclusive negotiation period with Nine and has refused to accept that exclusivity.
 
Resilient Performance Amid COVID-19: In a recent trading update, the company has confirmed that revenue in 3QFY20 was in-line with previous guidance. Moreover, the Audiences are showing robust growth across all of the company’s platforms, involving linear audience growth on core News and Current Affairs matter. In order to curb the impact of COVID-19, the company has permitted the majority of its work-force to work at home’ with negligible intrusion. To tackle the current global crisis, the company expects to execute major short and long-term cost plans across all of its businesses. 
 
1HFY20 Key Highlights: During the period, the company reported revenue of $1,182.5 million with EBITDA of ~$250.8 million, and a net profit after tax of ~$114.3 million on a statutory basis, pre-Specific Items. The company declared an interim dividend of 5.0 cents, fully franked.
 
 

H1FY20 Results (Source: Company reports) 
 
Outlook: As a result of the rapid progression of COVID-19 uncertainty, the company has withdrawn its guidance for FY20. Looking ahead, the company is focused on bringing forward cost efficiencies where possible.
 
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation Approach (Illustrative)

EV/EBITDA Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: In the past six months, the stock of NEC has declined by 16.15% on ASX and is currently trading close to the average of its 52 weeks low and high price of $0.815 and $2.130, respectively, offering a decent opportunity for accumulation. The company has P/E ratio of 33.48x and an annual dividend yield of 6.76%. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have considered peers like TPG Telecom Ltd (ASX: TPM), Vocus Group Ltd (ASX: VOC), and Telstra Corporation Ltd (ASX: TLS). Considering the company’s resilient performance amid COVID-19, and current trading levels, we give a “Speculative Buy” rating on the stock at the market price of $1.48 as on 29 May 2020.
 
 
NEC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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