As per the media reports, the entertainment industry of Australia is growing at a phenomenal rate. The leading driver related to the growth of the industry is online video. Additionally, the increasing proportion of entertainment revenue has been driven primarily by smartphones.
Southern Cross Media Group Limited (ASX: SXL)
Southern Cross Media Group Limited (ASX: SXL) is an Australia registered company, involved in broadcasting and creating content on commercial radio, online media platform and free-to-air TV. Recently, the company via a release updated the market about an agreement with Broadcast Australia in order to outsource its television and radio broadcast transmission. Under the terms of the agreement, Southern Cross Media Group Limited will be transferring transmission assets to Broadcast Australia and will be receiving managed and maintenance services for more than 500 radio and TV transmission services around Australia from Broadcast Australia. Additionally, the initial term for the agreement between SXL and Broadcast Australia is 15 years.
The company further stated that the transition to Broadcast Australia will begin over the coming few weeks, wherein the priority to be given to SXL’s most important markets. The company anticipates to wrap up the transition to BA (Broadcast Australia) by March 2020. The transaction will lead to non-cash loss amounting to $9.2 million from the sale of the company’s current broadcast transmission assets to Broadcast Australia, and this will also be recorded in FY19.
In another update, the company communicated that it will release its results for the full year ended 30th June 2019 on 22nd August 2019. Additionally, SXL informed investors that Vinva Investment Management became an initial substantial holder in the company with the voting power of 5.05% effective on 26th July 2019.
Macquarie Investor Conference Presentation Takeaways: The company in Presentation stated that the national investment with Southern Cross Media Group Limited in the regional radio markets has increased 12% and 14%, respectively over the last two years. SXL has led the education and conversation with agencies and advertisers. The company witnessed 13% CAGR in National Regional Radio Advertising Revenues. In addition, over the span of the last five years, the company experienced a reduction in net debt amounting to $284 million or 48%. The debt reduction program has placed the company with a much improved balance sheet, creating flexibility to pursue its corporate strategy.
The stock of Southern Cross Media Group Limited, at market close, was trading at a price of $1.190, down 1.245% during the day’s trade, with a market capitalisation of $926.66 million on 7th August 2019. The stock of SXL has provided returns of -5.86% for one month, -3.60% for three months and 13.68% for the six month period.
Nine Entertainment Co. Holdings Limited (ASX: NEC)
A communication services sector company, Nine Entertainment Co. Holdings Limited (ASX: NEC) is engaged in the program production and television broadcasting. Nine Entertainment Co. Holdings Limited was officially listed on ASX in 2013. Recently, the company via a release announced that National Australia Bank Limited and its associated entities ceased to be a substantial holder in the company from 22nd July 2019. Going forward, the company announced that it will be releasing results for the financial year 2019 on 22nd August 2019.
As per the release dated 1st July 2019, NEC has wrapped up the sale of Australian Community Media and Printing (or ACM) to a company, which is controlled by interests associated with Antony Catalano and Thorney Investment Group on 30th June 2019. The company received cash proceeds amounting to $105 million from the transaction.
The company recently provided an update with respect to its segments broadcasting, digital and publishing, stan and domain. In terms of broadcasting, NEC reported revenues amounting to $631.7 million as compared to $705.3 million. The total costs stood at $455.1 million for the same time period as compared to $517.0 million in 1H FY18. In terms of television, the company reported total television revenues amounting to $563.5 million in 1H FY19 versus $636.6 million of 1H FY18. Looking at domain and stan segments, NEC reported total revenues amounting to $183.9 million and $65.2 million in 1H FY19, respectively. The company posted cash conversion of 91% in 1H FY19 and reported pro forma cash flow from operating activities of $77.0 million in 1H FY19.
The company reported gross margin, EBITDA margin and operating margin of 39.3%, 50.8% and 29.9% in 1H FY19, reflecting a Y-o-Y growth of 5.5%, 27.4% and 9.0%, respectively. NEC delivered return-on-equity of 9.2% in 1H FY19 as compared to 16.6% in 1H FY18. The current ratio of the company stood at 1.78x in 1H FY19, reflecting a growth of 7.7% on a Y-o-Y basis. This represents that NEC has improved its capability to address its short-term obligations. When it comes to leverages, the company posted asset-to-equity ratio of 1.67x for the first half FY19 against 1.70x in 1H FY18. NEC reported a debt-to-equity ratio of 0.24x in 1H FY19 as compared to 0.13x of 1H FY18.
The company anticipates pro forma group EBITDA on a continuing business basis amounting to be $420 million, which equates to the rise of at least 10% on the FY18 like-basis result of $385 million. The company further stated that it anticipates positive momentum at the group level in FY20. In terms of Stan, it expects continued strong subscriber growth and limited variability in the cost base. From Q4 FY19, the stan segment is anticipated to be positive in terms of EBITDA.
The stock of Nine Entertainment Co. Holdings Limited, at market close, was trading at a price of $1.870 per share, up 1.63% during the day’s trade, with a market capitalisation of $3.14 billion on 7th August 2019. The stock of NEC has produced returns of -6.84% for one month and 28.22% for the six month period.
Seven West Media Limited (ASX: SWM)
Seven West Media Limited (ASX: SWM) is engaged into free-to-air television broadcasting, newspaper and magazine publishing. The company was officially listed on Australian Stock Exchange in 1992. Recently, the company via a release updated the market that Commonwealth Bank of Australia and its related bodies corporate have ceased to become a substantial holder in the company from 2nd August 2019. In addition, Vinva Investment Management has been ceased to be a substantial holder in the company with effect from 1st July 2019.
As per the release dated 14th June 2019, S&P Dow Jones Indices announced some changes in S&P/ASX Indices. Additionally, Seven West Media Limited was removed from the S&P/ASX 200 Index effective 24th June 2019.
Furthermore, the company witnessed softer Q2 in the metro TV ad market, but reported strong share growth. SWM reported an underlying EBIT of $147 million, reflecting a fall of 4%. The company delivered underlying net profit after tax (UNPAT) amounting to $91.8 million in 1H FY19. The net debt of the group declined below $590 million, which represents a fall of $121 million on a Y-o-Y basis. Seven West Media Limited has increased revenue share in FY19, including 42.5% share of BVOD market and a 41.3% share of the metro FTA market in April. The following picture provides a broader idea of consolidated profit and loss.
Consolidated Income Statement (Source: Company Reports)
The company reported gross margin, EBITDA margin and operating margin of 57.9%, 27.0% and 17.3% in 1H FY19 as compared to 60.1%, 28.5% and 19.7% of 1H FY18. SWM posted a net margin of 10.8% for the same time period as compared to 12.3% in 1H FY18. The current ratio of the company stood at 1.71x in 1H FY19, reflecting a Y-o-Y growth of 1.8%.
Seven West Media Limited anticipates underlying group earnings before interest and taxes (or EBIT) to be in the neighborhood of $210 million to $220 million for the year ending 30th June 2019 as compared to $235.6 million in the previous year. The net cost reduction for the group will come in at the upper end of the range at $30 million to $40 million. The company further stated that it continues to over-deliver on cost-savings, invest in strong growth areas and transform its business at pace. Moreover, 7Plus will be increasing revenues more than 40% and Seven Studios will be achieving robust EBIT growth for the financial year 2019. The company remain focused on decreasing its net debt by around $75 million and improving its balance sheet flexibility in the financial year 2019.
The stock of Seven West Media Limited, at market close, was trading at $0.395 per share, down 2.469% during the day’s trade, with a market capitalisation of $610.75 million on 7th August 2019. The stock of SWM has produced returns of -7.95% for the one month and -22.12% for the six month period.
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