Seven West Media Limited

SWM Details

Long-Term Partnership with Google: Seven West Media Limited (ASX: SWM) is one of the most prominent media companies in Australia, with a leading presence in content production across broadcast television, publishing and digital. As per the company report, SWM has entered into a letter of understanding (LOU) to form a long-term partnership with Google to provide news content.  According to the SWM's management, this new partnership recognizes the value, credibility and trust of both leading news brands and entertainment content across Seven and West Australian Newspapers. Hence, we presume that this synergistic long-term agreement might support topline growth in the future.

Reported a Robust 1HFY21: Despite a decline in revenues in 1HFY21, the company was able to register a growth in its NPAT during the same period considering a pandemic situation. SWM has posted a decline in its operating costs to $480mn in 1HFY21 and the net debt has been reduced significantly by 42% to $329 mn at the end of the period. During the period, the company’s digital revenue increased 73% on pcp, owing to Broadcast Video on Demand (BVOD) market growth.

Revenue and Profit Trend (Source: Company Reports)

Outlook: SWM is planning to invest in new content, which will lead to growth in audience share. SWM is expecting an increased share in growing BVOD market after securing number one position in broadcast and BVOD. The company has plans to work towards reducing its debt to pursue M&A opportunities.

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

EV/Sales Multiple Based Relative Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: In the last one month, SWM has increased by 63.63% and 140.0% in the last three months on ASX. The stock is currently trading above the average of its 52-weeks’ price range of $0.060-$0.590. On the technical analysis front, the stock has a support level of ~$0.468 and resistance of ~$0.671. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers Pureprofile Ltd (ASX: PPL), IVE Group Ltd (ASX: IGL), Gtn Ltd (ASX: GTN), to name a few. Considering an increase in profits, decline in debts, attractive valuations, current trading level, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.54, up by 1.886% as on 18 February 2021.

SWM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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