Changing Times

Ord Minnett recently initiated coverage of Seven West Media with a Buy recommendation and a $0.65 target price.

 

The television advertising market has been relatively stable for the past decade despite double-digit declines in other traditional media, such as print. However, the declines have accelerated recently as more consumers take up subscription video on demand (SVOD) and broadcast video on demand (BVOD) programming. We expect this trend to continue for the foreseeable future.

 

Seven West Media is multi-platform media company that was formed through the acquisition of Seven Media Group by West Australian Newspapers. It operates in free-to-air television, BVOD, print and digital news publishing, and magazine publishing segments. It also has investments in radio and other various digital properties.

 

Seven generated roughly 80% of its FY19 revenue from television operations, 12% from The West Australian Newspapers digital and print publications, 8% from Pacific digital and print magazines, and 1% from its ‘other business’ and ‘new ventures’ business units.

 

We understand new CEO James Warburton has been brought in to transform the company through M&A, either through a sale of the company or acquisitions that will dramatically change the revenue composition, with the former more likely due to balance sheet constraints.

 

Seven has been the top-rated free-to-air television network in Australia for 13 years running, although the company under-earned its metropolitan TV audience share in FY19. We see potential upside as revenue share catches up to audience share.

 

Seven’s 7Plus BVOD platform only launched in January 2018 and its news website 7News.com.au in March 2019, and already accounted for close to 4% of broadcast revenue in FY19. With the BVOD advertising market expected to grow at a rate of more than 25% in FY20, Seven’s digital platform presents a potential new revenue stream as advertising spending continues to migrate from traditional media to digital platforms.

 

The business faces structural headwinds from ongoing migration, however, as Seven’s Western Australian and Pacific print publications are still going through this transition. We expect advertising and circulation revenues for this segment to continue to decline in the near and medium term, although we believe this is already built into consensus estimates.

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