MEDIA REPORTS, page-815

Private Client Research

15 June 2020

Seven Group Holdings

Operations update

Seven West Media’s (SVW) core operating businesses appear to be holding up well despite impact from COVID-19, with revenue in the year to May rising 15% versus the same period last year at WesTrac and 2% for the Coates Hire business.

New haulage contracts with Fortescue Metals Group (FMG, Accumulate) are a positive and should support revenue growth in the medium term.

Our target price for Seven Group has increased to $16.20 from $13.50 and we maintain our Hold recommendation based on valuation.

•  WesTrac – WesTrac revenue has risen 15% in the year to May versus the same period last year. The year-on-year (YoY) increase is unchanged from Seven Group’s update in early April. In March, Seven Group was awarded two new haulage contracts with FMG for the Eliwana and Iron Bridge projects. Seven Group noted parts and service demand remained high, with some major customers stockpiling critical spares in response to COVID-19.

•  Coates Hire – Coates revenue has lifted 2% on a year ago, although below the 3% reported in Seven Group’s update in early April. May revenue is down YoY. The segment is seeing the impact from the cancellation of events, slowing building construction and lower productivity due to social distancing. Engineering and construction demand remains strong, however, and is poised to benefit from an expected acceleration in government projects.

•  Media – The media cost-savings program is targeting $90m by 30 June and a further $110m in FY21. This compares to $45m of gross cost savings implemented in 1H20 and a $20m target in 2H20 for benefits in FY21 for Seven West Media (SWM, Buy).

•  Boral – A screening process identified Boral (BLD, Hold) as a leading industrial business with challenges. Seven Group has taken a 10% stake in the company. The investment provides additional exposure to infrastructure investment in Australia with products leveraged to projects such as roads, highways, subdivisions, bridges and other non-residential construction. Seven Group intends to sell down existing positions over time to fund other opportunities.

•  Funding–Morethan$700minnewfundingisavailabletothegroup.SevenGroup has priced, but not yet closed, a US$300m ($460m) US private placement over three tranches, with a weighted average 3.88% coupon and 9.75-year maturity. Other new funding sources include a US$175m direct placement warehouse facility (being finalised) and a $200m share-based financing facility for investment activities. As at 31 May 2020, the company had $616m of available liquidity, comprised of $236m in cash and $380m in committed, undrawn facilities. Also, Seven Group’s listed portfolio represents about $150m of additional liquidity.

•  Guidance – There was no guidance for FY20. FY21 guidance will be assessed in August when the company reports its FY20 result.

Recommendation

Hold

Risk

Higher

Target price

▲$16.20 Previous $13.50 Last price $17.35

Price Performance 25.00

20.00 A$ 15.00 10.00 5.00

Jun-19 Sep-19 Dec-19 Mar-20

SVW share price (A$) S&P/ASX 200 (rebased)