Survival prospects slim for TMS, page-4

Hi Scanbox,

Looking at Global television (one of the bright lights for TMS), the following is apparent:

ESTABLISHED CLIENT BASE:

This includes:
1)
Network Ten;
2)
The Nine Network;
3)
TV Shopping Network (TVSN);
4)
Becker Group Ltd.;
5)
FOX Sports;
6)
FOXTEL;
7)
Southern Star;
8)
Cushion Kids;
9)
All Media Sports;
10)
Optus Vision;
11)
Hi 5; and
12)
in the field of racing, the Australian Jockey Club, Sydney Turf Club, Queensland Turf Club, Ipswich Turf Club and Sunshine Coast Turf Club.

Accounts for >2000 hours of airtime annually.


ASSET BASE:
Operates:
1)
18 OB units, including 4x 16:9 capable digital OB expandable "super trucks";
2)
10 studios shared between Sydney (North Ryde, and at Pyrmont), Melbourne (Nunawading, formerly the site of TEN), and Brisbane; and
3)
post production facilities, including digital linear and non-linear production edit suites and graphics.


REVENUE PERFORMANCE:

In recent years, Global's revenue results have trended up:

1) FY98 = $41.3m
$19.0m (31/12/97)
$22.3m (30/06/98)

2) FY99 = $48.5m
$25.5m (31/12/98)
$23.0m (30/06/99)

3) FY00 = $56.2m*
$26.3m (31/12/99)
$39.9m (30/06/00)
* Olympics impact.

4) FY01 = $49.6m
$25.5m (31/12/00)
$24.1m (30/06/01)

5) FY02 = $52.1m
$21.1m (31/12/01)
$30.0m (30/06/02)


FY03 REVENUE ESTIMATES:

These, I have estimated at the following:
1)
H1 = $27.9m
2)
H2 = $34.7m
3)
FY03 = $62.6m

SEGMENT RESULTS:

In recent years, Global's segment (ie: EBIT) results have varied within a stable trading range:

1) FY98 = $8.2m (19.9%)
$4.0m = 31/12/97
$4.2m = 30/06/98

2) FY99 = $7.5m (15.5%)
$5.4m = 31/12/98
$2.1m = 30/06/99

3) FY00 = $6.2m (11.0%)
$5.2m = 31/12/99
$1.0m = 30/06/00 (estimated, excluding inter-segment contribution)

4) FY01 = $6.3m (12.7%)
$5.7m = 31/12/00
$0.6m = 30/06/01

5) FY02 = $5.3m (10.2%)
$1.8m = 31/12/01
$3.5m = 30/06/02


FY03 SEGMENT ESTIMATES:

These, I have estimated at the following:
1)
H1 = $3.9m;
2)
H2 = $4.4m; and
3)
FY03 = $8.3m (13.6%)


GLOBAL VALUATION:

In my view, the Global results would support a valuation range of between 5 -8x prospective EBIT.

If EBIT in FY03 is $8.3m (+10%/-25%), the EBIT range is somewhere between $6.2m -$9.2m, making for a $7.7m EBIT midpoint.

At 5x earnings, Global would be valued at $38.5m. At 8x earnings, the valuation multiple would be $61.6m.


GLOBAL OPTIONS:

Clearly, Global is a valuable asset for TMS. Equally so, it is also a valuable asset for any of the FTA networks. However, with FTA trends being towards outsourcing of production, etc, it is likely that the Global business will either:
1)
stay where it is within TMS (ie: see off Val Morgan instead);
2)
be sold into the TX Australia FTA JV; or
3)
be sold into a new production company controlled by Nine and TEN.

According to The Australia, merger talks with TX Australia have already commenced. Quite conceivably, this could result in a backdoor listing of TX Australia via TMS.


VAL MORGAN:

I have not yet repeated this analysis for Val Morgan although there, the media is speculating on the following:
1)
re-negotiated theatre rental stream;
2)
JV acquisition via Village and Hoyts (ie: CPH).


OVERALL:

It is entirely likely that TMS will itself become the subject of a major generational change in the media industry, resulting in a changed cinema and TV broadcasting landscape emerging.

For today, however, the market will be down.