NZM has an unleveraged return on equity of 16% and trades at...

NZM has an unleveraged return on equity of 16% and trades at 8.5x trailing free cash flow ex. cash (defined as Net Income plus D&A minus CapEx) and a depressed (EV / EBITDA - minus Capex) multiple of 5.7x.

New Zealand Media & Entertainment Ltd is New Zealand's largest publishing & media content provider reaching over 3.4m of a 5.2m New Zealander population each day. The business operates under three segments being 1) -Publishing, 2) -Audio & 3) -Digital.

1) The company commands a 50% market share of advertising revenues and is rated as New Zealand's #1 Print & digital media provider under it's brands NZ Herald (Newspaper) & nzherald.co.nz (Digital) to name a few. The publishing arm f the business is the biggest contributor to earnings providing roughly $200m p.a. in revenues, followed by Audio at $100m p.a. & Digital at around $20m p.a.

2) The company is currently in a transitioning phase commencing in 2019 to become a prominent digital platform in-lieu of print. The company is targeting to have over 210k digital subscribers by year end 2023 up from around 109k subscribers in 2021. The push towards digital has allowed the company to significantly reduce operating expense by $20m p.a. from 2021 onwards.

This push to a more dominant digital content platform will allow margins to expand and become a more profitable business even with a declining newspaper model.

3) Management have also stated they will commence a share buyback up 11% of the business. This would reduced shares outstanding by roughly 21m taking total share count to approx.176m and a market cap of $214m based on today's share price of $1.22. Given the business has now paid down all debt and currently has $10m in cash places the business with an enterprise value of $204m.

So what? Well if management execute on their strategy, they repurchase $30m of shares and the business margins grow the company is selling at a ridiculous valuation of just 3x FY23 (EV / EBITDA) or 6.4x FY23 free cash flow / 16% FCF yield.

Catalyst

1) - The companies margins expand & earnings grow.
2) - 11% buyback takes place and earnings grow without margin expansion.
3) - The company stops being overlooked as a declining newspaper business and re-rates in-line with competitors (8-9x EV / EBITDA).
4) - Digital subscribers increase driving more advertising traffic to the platform.
5) - Social media monopolies are forced to pay NZME to display their content driving revenues and earnings.