We view CMJ as a cashbox ? net cash coupled with strong...

We view CMJ as a cashbox ? net cash coupled with strong associate free cash-flow (FCF) as Foxtel?s PVR & HD services near their peak take-up. We view the first glimpse of Foxtel?s result as supportive of our thesis of strong under-valued FCF growth. We retain our BUY and $3.15 Target Price.

Solid FY11 result for Foxtel, particularly given macro setting - Foxtel (CMJ owns 25%) looks to have delivered 18,000 net subs during the June half. Direct subs grew to 1.58m (2.5% vs. pcp) with total subs now at 1.652m. Wholesale subs continued their decline albeit future prospects could be brighter given the recent T-Box and Optus deals. Other operating KPI?s were solid. For FY11, churn fell to 12.5% (from 13.5% pcp and is the lowest in 4 years), ARPU was up >4-5% by our estimates and iQ penetration increased to ?nearly 75%?. Such improvements across these KPI?s has resulted in revenue growth of 6%, EBITDA growth of 15.5% (BPS was 12.5%) and PBT +26% vs. pcp. FCF was impressive, up 46% to ?in excess of $200m? (BPS $195m), highlighting our key investment thesis of strong cash generation.

Investment view ? Whilst we remain cautious on the macro environment, Foxtel?s result highlights the attractiveness of the STV model and the various levers it can pull (ie APRU growth) to grow earnings. We are happy to reinforce our BUY based on the relative defensive nature of STV versus traditional media which is skewed to the cyclical advertising market. Our valuation of Foxtel implies a 7.7x EBITDA multiple and we continue to believe this is justified given its operational performance. On this basis the current share price implies investors are valuing PMG at 5.5x EBITDA versus the 10x attributable multiple we ascribe to Premier Media Group (PMG). This is unjustified in our view, and this represents an attractive and fundamentally cheap entry point into CMJ. We view near term catalysts as CMJ?s FY11e results (23 August) and the ACCC ruling on Foxtel?s bid for AUN (8 September). We retain our BUY and $3.15 Target Price.