Ord Minnett recently initiated coverage of Nine Entertainment with a Buy recommendation and a $2.55 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.
Following the merger with Fairfax Media in 2018, Nine Entertainment has successfully diversified its revenue base away from its traditional broadcast TV business into growth areas in digital media, including Domain (DHG, Hold) and full ownership of Stan. This has lowered broadcast revenues from 87% to 47% of total group revenues, making the business less susceptible to the structural headwinds and cyclicality of TV advertising expenditure.
This has been supplemented by a stabilising traditional print publishing business as well as the potential acquisition of the remaining interest in Macquarie Media, which is also a stable business with upside poptential. Management has targeted $10m of cost benefits from the acquisition, although the revenue upside could be much more significant as Macquarie Radio Network currently commands only 7% revenue share of the radio market compared to its 18% audience share.
With Stan turning profitable at the latest half-year result, Domain coming out of the worst real estate listings environment in 20 years, and the acquisition of the remainder of Macquarie Media, we see revenue and cost benefits on top of cross-selling opportunities from Nine’s full suite of media assets.
We estimate Nine Entertainment will reach the lower end of its 0.5–1.0x target net leverage range by the end of FY20, which means management should have the balance sheet capacity to pursue further acquisitions or return capital to shareholders.