All that you need to know about Nine Entertainment’s interim results post Fairfax merger

Media and Entertainment giant, Nine Entertainment Co. Holdings Limited (ASX:NEC) released its first results after the acquisition of Fairfax Media and Stan for six months ended 31 December 2018.

Despite the combined synergies of both the leading media companies, Nine Entertainment reported a 1% decline in statutory Net profit After Tax of $171.6 million for the first half year of Fiscal 2019. It includes the specific items of $63 million relating to the contribution from Fairfax assets from the date of completion of a merger transaction, i.e., 7 December 2018.

On a Statutory basis, Nine reported H1 FY19 Group’s revenue of $709.8 million, down $9.8 million on $719.6 million in H1 FY18. Group’s EBITDA has also fallen by 2% to $177.8 million on the basis of statutory, continuing business and pre specific items. Nine’s broadcast segment 9Now has been the majority contributor to Group’s revenue as its revenue for six months to December 2018 grew 51% to $29.1 million, delivering EBITDA of $16.4 million, an increase of 54% compared to the previous corresponding period.

The results highlight further included 39% growth in its digital and publishing EBITDA underpinned by more than 50% growth in both Metro Media and 9Now. The strengthening performance of digital and publishing segment helped the company to achieve double-digit cost reduction in the Free-to-Air market, thereby offsetting weakness in the FTA market.

The consolidation of Netflix rival subscription video on demand service, Stan, has returned $93 million of gain in the carrying value following the Fairfax Media merger. Now being operated under the one umbrella, Stan’s active subscribers have reached to around 1.5 million that represents a growth of more than 60% over the 12 months to December 2018. However, Fairfax’s digital property portal Domain recorded flat revenues in a cyclical operating environment, specifically in its key markets of Sydney and Melbourne.

Group’s statutory earnings per share (EPS), pre Specific Items, plunged 17% to 11.1 cents per share for 6 months to December 2018 compared to 13.3 cents per shares in 1H FY18. The Directors determined to pay an interim dividend of 5.0 cents, fully franked, payable on 18 April 2019. This equates to a total dividend paid of $85 million, compared with Nine’s dividend of $44 million in H1 FY18.

Moreover, on a proforma basis, Nine reported Group EBITDA growth of 6% to $252 million with revenue of $1,204 million, down 3%, and Net Profit After Tax and Minority Interests of $126 million, up by 5% compared to H1 FY19. The Pro Forma results consolidate the continuing business results for the former Nine and Fairfax businesses for the full six months, including the consolidation of Stan.

Outlook:

For full Fiscal Year 2019, Nine expects to achieve Pro Forma Group EBITDA on a continuing business basis of at least $420 million which equates to growth of at least 10% on the FY18 like-basis result of $385 million. Going forward, Nine estimates that total cost synergies available will be around $65 million. Whereas, full-year FTA costs are now reportedly expected to be down by about 4%.

The company further anticipates Stan to be profitable Q4 FY19, and report a positive contribution to EBITDA in FY20, on the back of increased subscriber numbers and price hikes.

In today’s trading session, NEC stock price surged up by 7.167% to last trade at $1.570 on 21 February 2019. The stock was trading at a Price to Earnings multiple of 6.100 x with a market capitalisation of $2.5 billion.

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