Nine Entertainment Co. Holdings Limited

NEC Details

H1FY21 Results Update: Nine Entertainment Co. Holdings Limited (ASX: NEC) is a media and entertainment company. The market capitalisation of the company as on 25 February 2021 stood at ~$4.99 billion. The company has recently announced its H1FY21 results, with net sales at $1,162.8 million. Group EBITDA grew by ~42% to $355.4 million during the period, from $250.8 million in H1FY20. It delivered a decent rise of ~79% in statutory net profit from continuing operations to $181.9 million. There was a growth of 53% in digital EBITDA during the period, compared to the pcp. Digital accounted for 41% of the group EBITDA during H1FY21. NEC had a net debt of ~$150 million during the period end, translating to leverage of ~0.4x.

Improvement in Digital Performance (Source: Company Reports)

Outlook: The company expects the advertising market to show resilience in the future, benefitting from a shift to ‘brand’ by major advertisers. NEC’s deal with Adobe will help in further monetization of Nine’s competitive data advantage. It expects Nine Radio to improve on its performance into FY22, as the radio market recovers gradually.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 company expects to pay an interim dividend of 5.0 cents per share on 20 April 2021. As per ASX, the stock of NEC is trading close to its 52-weeks’ high of $3.05.  The stock of NEC gave a positive return of ~25% in the past three months and a positive return of ~71.51% in the past six months. On a technical analysis front, the stock of NEC has a support level of ~$2.57 and a resistance level of ~$3.043. We have valued the stock using a P/CF multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Seven West Media Limited (ASX: SWM), HT&E Limited (ASX: HT1), Ooh!Media Limited (ASX: OML), to name a few. We believe that the company can trade at some premium to its peer median P/CF (NTM Trading multiple), considering its decent increase in EBITDA performance in H2FY21, growth in the digital segment and strong audience results across all platforms. Considering the current trading levels, expected upside in valuation, impressive H1FY21 performance, accelerated increase in digital EBITDA and optimistic outlook, we recommend a 'Hold' rating on the stock at the current market price of $2.950, up by 0.682% as on 25 February 2021.

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

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