ferret's stock to watch: john fairfax ltd

Ferret's Stock to Watch: JOHN FAIRFAX LIMITED
07:46, Friday, 14 January 2005


MEDIA LEADER MAY BE BACK ON EXPANSION TRAIL AFTER NZ



Sydney - Friday - January 14: (RWE)
**********************************

OVERVIEW
********

John Fairfax shares drifted off 1c yesterday to $4.50 yesterday
despite speculation that the company had bought Canwest's 57.5 per cent
stake in the Ten Network.

The latter's shares took off in the market, climbing 24c to
$4.40.

At the same time John Fairfax Holdings Ltd yesterday reported to
the Australian Stock Exchange that the company was continuing to assess
strategic options, including discussions with various industry
participants.

The company said it was making the announcement in response to
media speculation.

"There are no developments to report to the market," directors
said.

"The company will, in accordance with the continuous disclosure
rules, promptly advise the market of material developments."

In its halycon days Fairfax owned the Seven Network and would be
well suited to bring Channel 10 into the group.

Strangely Canwest could be selling at a time when the 10 network
is showing significant improvement and providing strong competition to
Channel 9 and 7.

Before its New Zealand acquisitions, John Fairfax's managing
director Fred Hilmer(shortly to depart) stressed the company was always
looking for deals to boost earnings flow.

SHARE PRICE MOVEMENTS
*********************
Shares of John Fairfax yesterday drifted down 1c to $4.50
following the market speculation about the company's possible involvement
in Channel 10. Rolling year has been $4.60 and low $3.18. Diviend is
16.5c to yield 3.67 per cent.

Meanwhile Fairfax has announced it will release its half yearly
result on February 21.

The question is - can Fairfax swallow such a big prize?

Fairfax is capitalised at $4.15 billion while the Ten Network has
a market value of $1.65 billion, well within the Fairfax reach if
relative earnings stack up.

Last November Fairfax was given a morale building boost from
Standard & Poor's Ratings Services which revised its outlook on the
company.

Mr Sankar Narayan, Chief Financial Officer of Standard & Pores
said its ratings company had removed the negative outlook held since
the acquisition in New Zealand.

The outlook on John Fairfax Holdings Ltd's 'BBB' long term credit
rating has changed to stable from from negative.

This was as a result of Fairfax's well executed integration of
Independent Newspapers Ltd (INL)'s New Zealand publishing operations, the
strong performance of these acquired assets, and the significant
reduction in debt since the INL acquisition in June 2003.

"The better-than-expected performance from the New Zealand
operations has helped offset the subdued classified advertising
environment in Australia.

"This due in part to the ongoing fragmentation of classified
advertising volumes, including the modest, but increasing shift of
classified revenues towards the Internet.

"Accordingly, the New Zealand operations, which accounted for
about 38 per cent of group EBIT in fiscal 2004, are expected to provide
an increasingly important source of revenue diversity as the group
addresses these structural challenges, which are more advanced in
Australia," said Standard & Poor's credit analyst Paul Draffin.

The continued strong trading conditions in New Zealand and modest
growth in Australia should facilitate additional debt reduction and
improving cash flow generation in the near term, further strengthening
key credit measures.

Of equal importance is the underlying assumption behind the
outlook revision that any future capital management initiatives
undertaken by the company will remain consistent with the 'BBB' rating.
The ratings on Fairfax reflect the strong franchises of the company's
publishing mastheads, strong free cash flow generation, reasonable
revenue diversity across the east coast of Australia and New Zealand, and
a growing presence in online classified advertising.

These strengths largely mitigate earnings volatility caused by
an exposure to cyclical advertising volumes and a high fixed cost base;
the ongoing threat of a migration of classified advertising revenues to
the Internet and other distribution channels; and the group's moderate
financial risk profile.

The outlook is stable.

"Strong free cash flow generation and a prudent approach to
capital management should facilitate further debt reduction in the near
term.

"This, together with the successful growth of Fairfax's online
classified businesses and the maintenance of strong classified
advertising market shares, should support rating stability in the next
few years," said S&P's Draffin.

To maintain the rating, Standard & Poor's expects Fairfax to
generate funds from operations-to-debt (including preference shares) at
about 25 per cent, and EBITDA interest cover (including preference share
dividends) of more than 5x, through the advertising
cycle.

These ratio estimates assume no material deterioration in
Fairfax's business profile and market position.


BACKGROUND
**********

John Fairfax Holdings Limited is Australasia's largest newspaper
publishing group.

It was restructured in 1992 and relisted in May of the same year.


In Australia, mastheads include The Sydney Morning Herald, The
Age, The Australian Financial Review, BRW and The Sun-Herald.

Its New Zealand mastheads include The Dominion Post, The Press,
The Sunday Star-Times, TV Guide, and Cuisine. In addition, Fairfax
publishes regional and community newspapers, financial and consumer
magazines, and provides online, interactive and e-commerce services
through Fairfax Digital in Australia and stuff.co.nz in New Zealand.

Fairfax has a market capitalisation of over $3.3 billion
(September, 2004)- today $4.15 billion .

For the financial year ended June 30, 2004, Fairfax reported
revenues of $1.77 billion and net profit after tax and pre-significant
items of $207.6 million.

EBIT of $347.7 million and earnings per share (pre-significant
items) was 21.36 cents.

The board announced a total dividend for the year of 16.5 cents
per share, fully franked.

Listed Australian publications to June 2004 showed The Sydney
Morning Herald (216,857; 373,825), The Sun-Herald (524,795 Sundays)
The Age (198,500; 304,200)and the The Sunday Age (194,500)

The business media collection includes the Australian Financial
Review (85,746); The Australian Financial Review, Weekend Edition
(88,000), AFR Magazine (98,098 monthly) Boss (100,000 monthly) afr.com
Business Review Weekly (58,000 weekly) and Personal Investor (53,000
monthly)

Fairfax regional and community newspapers cover The Herald
(55,000 M-Sat) Weekender; The Post, Newcastle and Lake Macquarie
The Hunter Post, Central Coast Sun Weekly, Port Stephens Examiner
Port Stephens Examiner Pink Pages, Illawarra Mercury (30,991)
The Advertiser Wollongong The Advertiser - Shellharbour
The Warrnambool Standard (13,093), Moyne Gazette Colac & Corangamite
Extra.

Community Newspapers in NSW include Auburn Review,
Bankstown/Canterbury Torch, Cooks River Valley Times, Northern Beaches
Weekender (Torch Newspapers) Blacktown City Sun, Fairfield City Champion,
Hills News, Liverpool City Champion, Campbelltown Macarthur Advertiser,
Camden Advertiser, Hawkesbury Independent, Northern News
Parramatta Sun Penrith City Star, St Marys Star. St. George & Sutherland
Shire Leader Wollondilly Advertiser.

Fairfax NZ publications include:

Metropolitan newspapers -The Dominion Post (97,310)
The Press (90,623) Waikato Times (40,009)

Provincial newspapers; Manawatu Standard, The (19,775)
Marlborough Express, The (9,862) Nelson Mail, The (18,084)
Southland Times, The (28,557) Daily News, The (25,735) Timaru Herald, The
(13,873)

National Sunday Star-Times (207,625, Sundays), Sunday News
(109,900 Sundays) Friday Flash (8,317 Fridays) Turf Digest, Best Bets
New Zealand Truth (18,671 Fridays)

Online: Stuff.co.nz (694,151), Jobstuff (80,905) Adstuff
Propertystuff (27,271) Cuisine (25,853)

It has at least 60 community newspapers scattered through New
Zealand.

Fairfax Digital (fairfaxdigital.com.au) is the interactive
subsidiary of John Fairfax Holdings Limited (ASX:FXJ).

Fairfax Digital is visited by more than 5 million unique visitors
monthly in two principal areas:

* News - Fairfax Digital is home to Australia's news sites of
record.

These include smh.com.au, theage.com.au and afr.com as well as
finance sites tradingroom.com.au and moneymanager.com.au.

Fairfax Digital's news sites are the most read general and
business & finance news sites in Australia.

* Fairfax Digital's leading classified supersites for jobs, homes
and cars - mycareer.com.au, domain.com.au and drive.com.au - are growing
businesses which extend Fairfax's leading classifieds franchise online.

The audience that visits Fairfax Digital's sites has a
demographic profile that is second to none and its advertiser base
encompasses a significant proportion of Australia's top 100 advertisers.

In other investments Fairfax owns 43.4 per cent of AAP
Information Services, a news and information company.

ENDS

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I don't hold FXJ