A buy at this price

Had a look at SWM after noticing they have been hitting historic SP lows and today have bought in on the basis of being grossly undervalued on both an earnings and peer comparison basis. Firstly to state the obvious there is no doubt the company has seen a decline in recent years with some strong headwinds from a changing media/tech landscape. However the commercial TV stations in Australia still have a while to run I think, especially in sport (where certain sports have to be offered to free to air before pay TV), news and locally produced light entertainment. In these segments there is no real direct competition for the Australian consumer.

Some observations below after looking at the financials of SWM (MC 840m), together with some quick comparisons to peers NEC (Nine, MC 1.5b) and FXJ (Fairfax, MC 1.5b).

Firstly, SWM is made up of four segments; the television station, the West Australian, a magazine business and Yahoo Seven. The TV station has seen earnings decline in recent years, on the back of rising costs rather than declining revenues. The TV station, as a segment, had an EBITDA of 270m in FY17 which in itself is 50 m greater than all of NEC (made up of Nine network and Stan) and 70m greater than Fairfax (newspapers, Radio, Stan, Domain). The West Australian holds a monopoly on newspapers in Perth, profits have halved in the last four years but still came to $46m in FY 17. Furthermore the paper would be a good fit for either Fairfax or News Corp in a trade sale, media ownership laws permitting. The magazine segment has declined dramatically in recent years to the extent that it has made little contribution to earnings. Expect vigorous cost-cutting here (which only looks like it started in earnest in FY 2017) - it is unclear what this business will look like in the future.

Look forward to hearing from other posters if there is some elephant in the room I am missing. At this stage though I'm in agreement with the Seven motto - Gottaloveit! (well except for the magazines!)