Ferret's Stock to Watch: JOHN FAIRFAX LIMITED 07:46, Friday, 14 January 2005
MEDIA LEADER MAY BE BACK ON EXPANSION TRAIL AFTER NZ
Sydney - Friday - January 14: (RWE) **********************************
OVERVIEW ********
John Fairfax shares drifted off 1c yesterday to $4.50 yesterday despite speculation that the company had bought Canwest's 57.5 per cent stake in the Ten Network.
The latter's shares took off in the market, climbing 24c to $4.40.
At the same time John Fairfax Holdings Ltd yesterday reported to the Australian Stock Exchange that the company was continuing to assess strategic options, including discussions with various industry participants.
The company said it was making the announcement in response to media speculation.
"There are no developments to report to the market," directors said.
"The company will, in accordance with the continuous disclosure rules, promptly advise the market of material developments."
In its halycon days Fairfax owned the Seven Network and would be well suited to bring Channel 10 into the group.
Strangely Canwest could be selling at a time when the 10 network is showing significant improvement and providing strong competition to Channel 9 and 7.
Before its New Zealand acquisitions, John Fairfax's managing director Fred Hilmer(shortly to depart) stressed the company was always looking for deals to boost earnings flow.
SHARE PRICE MOVEMENTS ********************* Shares of John Fairfax yesterday drifted down 1c to $4.50 following the market speculation about the company's possible involvement in Channel 10. Rolling year has been $4.60 and low $3.18. Diviend is 16.5c to yield 3.67 per cent.
Meanwhile Fairfax has announced it will release its half yearly result on February 21.
The question is - can Fairfax swallow such a big prize?
Fairfax is capitalised at $4.15 billion while the Ten Network has a market value of $1.65 billion, well within the Fairfax reach if relative earnings stack up.
Last November Fairfax was given a morale building boost from Standard & Poor's Ratings Services which revised its outlook on the company.
Mr Sankar Narayan, Chief Financial Officer of Standard & Pores said its ratings company had removed the negative outlook held since the acquisition in New Zealand.
The outlook on John Fairfax Holdings Ltd's 'BBB' long term credit rating has changed to stable from from negative.
This was as a result of Fairfax's well executed integration of Independent Newspapers Ltd (INL)'s New Zealand publishing operations, the strong performance of these acquired assets, and the significant reduction in debt since the INL acquisition in June 2003.
"The better-than-expected performance from the New Zealand operations has helped offset the subdued classified advertising environment in Australia.
"This due in part to the ongoing fragmentation of classified advertising volumes, including the modest, but increasing shift of classified revenues towards the Internet.
"Accordingly, the New Zealand operations, which accounted for about 38 per cent of group EBIT in fiscal 2004, are expected to provide an increasingly important source of revenue diversity as the group addresses these structural challenges, which are more advanced in Australia," said Standard & Poor's credit analyst Paul Draffin.
The continued strong trading conditions in New Zealand and modest growth in Australia should facilitate additional debt reduction and improving cash flow generation in the near term, further strengthening key credit measures.
Of equal importance is the underlying assumption behind the outlook revision that any future capital management initiatives undertaken by the company will remain consistent with the 'BBB' rating. The ratings on Fairfax reflect the strong franchises of the company's publishing mastheads, strong free cash flow generation, reasonable revenue diversity across the east coast of Australia and New Zealand, and a growing presence in online classified advertising.
These strengths largely mitigate earnings volatility caused by an exposure to cyclical advertising volumes and a high fixed cost base; the ongoing threat of a migration of classified advertising revenues to the Internet and other distribution channels; and the group's moderate financial risk profile.
The outlook is stable.
"Strong free cash flow generation and a prudent approach to capital management should facilitate further debt reduction in the near term.
"This, together with the successful growth of Fairfax's online classified businesses and the maintenance of strong classified advertising market shares, should support rating stability in the next few years," said S&P's Draffin.
To maintain the rating, Standard & Poor's expects Fairfax to generate funds from operations-to-debt (including preference shares) at about 25 per cent, and EBITDA interest cover (including preference share dividends) of more than 5x, through the advertising cycle.
These ratio estimates assume no material deterioration in Fairfax's business profile and market position.
BACKGROUND **********
John Fairfax Holdings Limited is Australasia's largest newspaper publishing group.
It was restructured in 1992 and relisted in May of the same year.
In Australia, mastheads include The Sydney Morning Herald, The Age, The Australian Financial Review, BRW and The Sun-Herald.
Its New Zealand mastheads include The Dominion Post, The Press, The Sunday Star-Times, TV Guide, and Cuisine. In addition, Fairfax publishes regional and community newspapers, financial and consumer magazines, and provides online, interactive and e-commerce services through Fairfax Digital in Australia and stuff.co.nz in New Zealand.
Fairfax has a market capitalisation of over $3.3 billion (September, 2004)- today $4.15 billion .
For the financial year ended June 30, 2004, Fairfax reported revenues of $1.77 billion and net profit after tax and pre-significant items of $207.6 million.
EBIT of $347.7 million and earnings per share (pre-significant items) was 21.36 cents.
The board announced a total dividend for the year of 16.5 cents per share, fully franked.
Listed Australian publications to June 2004 showed The Sydney Morning Herald (216,857; 373,825), The Sun-Herald (524,795 Sundays) The Age (198,500; 304,200)and the The Sunday Age (194,500)
The business media collection includes the Australian Financial Review (85,746); The Australian Financial Review, Weekend Edition (88,000), AFR Magazine (98,098 monthly) Boss (100,000 monthly) afr.com Business Review Weekly (58,000 weekly) and Personal Investor (53,000 monthly)
Fairfax regional and community newspapers cover The Herald (55,000 M-Sat) Weekender; The Post, Newcastle and Lake Macquarie The Hunter Post, Central Coast Sun Weekly, Port Stephens Examiner Port Stephens Examiner Pink Pages, Illawarra Mercury (30,991) The Advertiser Wollongong The Advertiser - Shellharbour The Warrnambool Standard (13,093), Moyne Gazette Colac & Corangamite Extra.
Community Newspapers in NSW include Auburn Review, Bankstown/Canterbury Torch, Cooks River Valley Times, Northern Beaches Weekender (Torch Newspapers) Blacktown City Sun, Fairfield City Champion, Hills News, Liverpool City Champion, Campbelltown Macarthur Advertiser, Camden Advertiser, Hawkesbury Independent, Northern News Parramatta Sun Penrith City Star, St Marys Star. St. George & Sutherland Shire Leader Wollondilly Advertiser.
Fairfax NZ publications include:
Metropolitan newspapers -The Dominion Post (97,310) The Press (90,623) Waikato Times (40,009)
Provincial newspapers; Manawatu Standard, The (19,775) Marlborough Express, The (9,862) Nelson Mail, The (18,084) Southland Times, The (28,557) Daily News, The (25,735) Timaru Herald, The (13,873)
National Sunday Star-Times (207,625, Sundays), Sunday News (109,900 Sundays) Friday Flash (8,317 Fridays) Turf Digest, Best Bets New Zealand Truth (18,671 Fridays)
It has at least 60 community newspapers scattered through New Zealand.
Fairfax Digital (fairfaxdigital.com.au) is the interactive subsidiary of John Fairfax Holdings Limited (ASX:FXJ).
Fairfax Digital is visited by more than 5 million unique visitors monthly in two principal areas:
* News - Fairfax Digital is home to Australia's news sites of record.
These include smh.com.au, theage.com.au and afr.com as well as finance sites tradingroom.com.au and moneymanager.com.au.
Fairfax Digital's news sites are the most read general and business & finance news sites in Australia.
* Fairfax Digital's leading classified supersites for jobs, homes and cars - mycareer.com.au, domain.com.au and drive.com.au - are growing businesses which extend Fairfax's leading classifieds franchise online.
The audience that visits Fairfax Digital's sites has a demographic profile that is second to none and its advertiser base encompasses a significant proportion of Australia's top 100 advertisers.
In other investments Fairfax owns 43.4 per cent of AAP Information Services, a news and information company.
ENDS
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I don't hold FXJ
FXJ Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held