Southern Cross Media Group Limited

SXL Details
 
Completion of Equity Raising: Southern Cross Media Group Limited (ASX: SXL) is engaged in the creation and broadcasting of content on free-to-air commercial radio, TV, and online media platforms across Australia. As on 22 May 2020, the market capitalization of the company stood at ~$396.32 million. The company has successfully completed the fully underwritten equity raising of pro-rata non-renounceable entitlement offer, wherein it raised approximately $169 million.

Operational and Capital Structure Initiatives: The company has provided a trading update for the month of April, wherein it reported a decline in revenues. In the same time span, SXL generated positive EBITDA. This was mainly because of the reduction in operating costs. The company has implemented various operational and capital structure initiatives which will enhance its liquidity and will support a more efficient operating model, appropriate for the current macroeconomic environment. The initiatives are also likely to reduce gearing from 2.29x to 1.17x Net Debt/EBITDA.

Half-Year Results: During 1H20, revenue of the company went down by 8.2% to $308.1 million, and EBITDA of the company witnessed a decline of 27.7% to $67.5 million.


Half Yearly Financial Highlights (Source: Company Reports)

What to Expect: The company has a relentless focus on content quality & improved creativity. It is increasing its investment and is focusing on stronger automation and cost efficiency. SXL is building scaled, profitable, and sustainable revenue streams and is evolving technologies, providing a unique opportunity to scale and mature assets. The company is implementing cost saving measures to decrease the severity of the global pandemic. It is targeting to reduce its capital expenditure and is expecting capex in between $15 million to $16 million in FY21. These initiatives are likely to strengthen the company’s balance sheet and will improve financial flexibility and liquidity. The COVID-19 crisis is causing significant dislocation across advertising markets, and thus the recent market trends have been challenging. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months.

Stock Recommendation: As per ASX, the stock of SXL gave a negative return of 83.12% in the past one year, but a positive return of 25% in the last one month. The company is expecting a material impact in revenues in current uncertain macroeconomic environment. However, the company’s operating expenditure savings have adjusted the cost base and it is focused on maintaining balance sheet flexibility. Considering the trading levels, volatility in returns, softer market conditions and impact of the COVID-19 crisis on business activities, we have valued the stock using a Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price with an upside of lower single-digit (in percentage terms). For the said purposes, we have considered HT&E Ltd (ASX: HT1), Ooh!Media Ltd (ASX: OML) and Seven West Media Ltd (ASX: SWM) as peers. The stock is currently trading close to its 52-week low. Hence, we suggest investors to keep an eye on the company’s business activities and suggest a watch stance on the stock at the current market price of $0.145, down by 3.333% on 22 May 2020. 

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

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