another stock that has been hammered

In my view management have two choices
1. Capital Raising
2. Cut dividend

STOCKS TO WATCH COMSEC
SEVEN WEST MEDIA LIMITED
Summary of Report
Stock Code: SWM Sector
12mth Price Target:
$2.52
Last Traded:
$2.13*
Market Cap:
$1418.80m*
ALL THE BAD NEWS IN THE PRICE – TIME TO BUY
SWM has come under substantial pressure over the last few months, hit by its April profit warning, potential for lower dividends and concerns over gearing and/or capital raising. However with the stock having underperformed the market by 39% over the last quarter and trading on record lows, we think the bad news is now in the price and upgrade to BUY. Our revised forecasts suggest
SWM is trading on an FY12f PE of 7.1x and our $2.52ps price target implies 13% capital return and 25% total return upside.
Potential for $200-300m capital raising – but in the price
While SWM’s DRP is a form of capital raising, we see the potential for a further capital raising to reduce SWM’s gearing. We estimate a $300m rights issue, fully underwritten by Seven Group Holding (SGH) would reduce net debt/ EBITDA to 2.7x in FY13f (from 3.4x) and 2.5x in FY14f (from 3.3x).
Our blended valuation in this scenario would reduce to $2.46ps and price target(10% discount to valn) to $2.22ps – largely in line with the current share price.

Investment view – BUY with $2.52ps price target
While earnings are expected to remain under pressure for the near-term, we believe SWM is now offering good value and an
attractive fully franked yield for investors.