Ann: Presentation of Year End Results, page-12

FY21 underlying net profit of $125.5m, versus $36.9m in FY20, and underlying operating earnings (EBITDA) of $253.9m, roughly doubling the previous year’s figure.

Significantly, Seven’s net debt reduced 40% to $240m and it now implies a leverage ratio of 0.95x. I think this is an amazing reduction to say the least. The debt when I started buying was worth more than the company with its earnings….

FY22 will have its share of one-off costs, although given the outlook for digital EBITDA growth and increased free-to-air (FTA) market share, it appears the risk-reward equation remains skewed to the upside. I dont know of any other media company that can attest to that.

Linear declines will likely persist, albeit more than offset via broadcast video on demand (BVOD) at maturity.

I think content investment will drive revenue share, with cost savings remaining a focus and supported by BVOD, which may present significant EBITDA opportunity to Seven if this industry becomes $900m by FY25.

For costs I can assume assume $1.092bn in FY22 versus guidance of $1.08–1.10bn.

The step-up from FY21 to FY22 is driven by content investment, targeting share growth in 3QFY22 0.10 to be on the conservative side lets say….via content investment typically weaker

Seven is looking ultimately to drive improved revenue share and it seems will be generating a lot of it through BVOD.

So my calculation is an overall leverage ratio of 0.95x.

Lets have a look at some comparisons….

• Market share…SWM reaching 40% revenue share for FTA in 1H22. As the market grows, SWM guided to $8m of revenue per 1% market growth and $23m of revenue for 1% revenue share.
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• Management sees $90m broadcast revenue upside to return to historical share levels….and I assume divs once debt is further reduced will be not far behind it.

• FTA TV spending according to the interim July 2021 advertising spending data release from SMI, for metro TV agency bookings, the Tokyo Olympics delivered an 81.7% boost for Seven in July. For regional TV, Seven’s agency bookings were up 64.8% YoY in Queensland. In the year to date, SWM has seen 28.8% YoY growth in the Queensland regional network. Further, Seven West Media’s subscription TV bookings were up 73.8% YoY versus 25.3% YoY for Foxtel Media YTD…..I love all that growth whereby most are seen to be cannibalising themselves.

• Valuation and earnings, Seven is trading on an FY22E P/E multiple of 5.4x versus Nine Entertainment (NEC, Buy) at 17.5x, and an EV/EBITDA multiple of 4.9x versus Nine at 9.1x.
• I estimate FY22 revenue of $1.36bn, EBITDA of $272.5m, and an underlying net profit of $149.7m if SWM keep to the mandate of the turn around story thus far….

While SWM continues to face structural headwinds from continued migration of advertising spending to other digital platforms, I think these are already accounted for in the share price.

I also think Seven digital BVOD platform 7Plus and news website 7news.com.au will continue to contribute significant EBITDA growth.

Debt fears have been allayed……!!!!!!!! I dont know how many times I have said this.

While the business continues to face structural headwinds from the continued migration of advertising spend away from the company’s core TV broadcasting and print businesses to other digital platforms with declines in the business are already built into the share price.

There may be a pull back and if it goes below .30 I will be adding to my holdings…

With the number-one rated FTA TV network in Australia for 13 years running, the company under-earned its audience share in FY19 and should see upside as revenue share catches up to audience share.