Private Client Research 19 February 2020Seven West...

Private Client Research 19 February 2020

Seven West Media

First-half FY20 result review

Seven West Media (SWM) reported first-half FY20 operating earnings (EBITDA) of $136.6 million, lower than Ord Minnett’s $142.3 million estimate and consensus of $142.0 million, and underlying earnings before interest and tax (EBIT) of $119.7 million below our $124.6 million forecast. Underlying net profit of $69.3 million was in line with our $70.5 million estimate.

FY20 underlying EBIT guidance was lowered to $165–175 million, from $190–200m previously.

We maintain our Buy recommendation on Seven West Media with a $0.65 target price.

 FY20 guidance – Trading conditions have remained consistent with the first half, with metro free-to-air (FTA) TV falling 7.0% in the first half versus the total advertising market decline of 8.5%. This compares to the previous expectation of mid-single-digit declines in metro FTA advertising spending. It is also targeting a further $20m of cost outs for execution in 2H20 for the benefit in FY21.

 Seven Network – Seven Network revenue of $603.3m was better than our $600.2m forecast, while EBITDA of $123.3m was worse than our $130.7m and EBIT of $108.9m was below our $118.0m. Broadcast and digital advertising revenue of $550.1m was weaker than our $553.6m estimate, while Seven Studios revenue of $53.2m was better than our $46.6m. Seven retained its #1 FTA network revenue share, increasing share by 0.4ppt to 38.8% in 1H20, versus our estimate of 39.0%. It also retained its #1 ratings share across the full schedule, with a 38.5% rating in the P25–54 age group between 6am and midnight.

 West Australian Newspapers and Pacific Magazines – West Australian Newspapers (WAN) revenue of $94.3m was better than our $89.2m forecast, while Pacific Magazines revenue of $57.3m was weaker than our $61.3m. Combined EBITDA was $16.5m, below our $19.0m estimate, while EBIT came in at $14.3m, higher than our $13.2m.

Recommendation

Buy

Risk

Higher

Target price

$0.65

Last price

$0.21

Price Performance

0.80

0.60 A$ 0.40 0.20 0.00

Feb-19 May-19 Aug-19

Nov-19

SWM share price (A$) S&P/ASX 200 (rebased)