Audio market has been the highlight in Southern Cross forward plan. It said audio is entering a “golden age”, considering it as the primary force for driving ad revenue. Smart speaker adoption has more than doubled in 2018 in the United States and is said to witness a similar growth trajectory in Australia.
During FY18 Southern Cross Media Group Limited (ASX: SXL) has achieved tremendous digital audio engagement with +74% catch up radio podcasts and +55% improvement in app listeners on the back of 24% growth in digital radios over the past 12 months.
On balance sheet front, Southern cross media has de-levered its balance sheet over the last 4 years. Net debts have reduced 48% or $284 million in four years, i.e. from June 2014 to June 2018. This debt reduction has well positioned the company to improve its balance sheet and create flexibility for corporate strategies.
The company targets to manage capital in such a way that it generates maximum return to shareholders. For this purpose, leverage ratio range of 1.5x to 2.0x has been considered appropriate by the company while seeking to maintain the low investment grade metrics.
Weighted average cost of capital is targeted to be kept at minimum level by ensuring the right mix of debt and equity. The management of Southern Cross Media focuses on increasing both ROIC and EPS that could provide balanced indication of capital allocation.
Under the long-term growth strategy, company plans to invest in audio assets as digital radio progress provides audience growth at low cost. Since podcast business has low capital requirement, and content reach gets hiked through digital platforms, SXL shows particular interest in audio market. It intends to invest in measurement and attribution systems to support continued market investment in audio sector while exploring opportunities in adjacent sectors.
Towards sales strategy for FY19, insight-led advertising solution and brand building of radio are determined to become the major contributors supported by the company’s distinctive position in TV and Radio across the regional market. Looking into capital expenditure front, company aims to increase spend on IT platform and lower down its recurring property expenditure from FY20.
Southern Cross stock plunged 5% ahead of investor day presentation release. It last traded at $1.140 with PE of 631.580 x and market capitalization of $922.82 million as on 25 October 2018. Further, the stock has witnessed a performance change of +5.26% over the past one year.
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