still a really cheap media stock

NZME results today confirmed the good trend we have seen for them and the advertising market since October 2020.

NZME results for FY 20 (ending in December) were in line (a bit better) than their last guidance, both for EBITDA and net profit.
Main elements :
- revenues decreased by 11 %, mainly due to - 15 % for ad revenues (due to the market decline),
- EBITDA increased by 3 %, but decreased by 10 % if we remove the impact of government wage subsidies (8.6 m net).
- net debt decreased to 33.8 m (last guidance was indicating less than 45 m) thanks to a free cash flow of 41 m (after lease) and only 32.5 m if we exclude the impact of wage subsidies.

As indicated in their presentation, the company outperformed the market in all 4 pillars : radio ad, digital display ad, print ad and print circulation.
For example, their reader revenues increased by 2 %, with the decrease of retail outlet sales, offset by the increase in print ad and digital subscribers.

Overall these good results can be explained by 3 main elements :
- the success of their strategy focusing on digitalization and subscription,
- the rebound of the ad market at the end of the period,
- aggressive cost cutting in 2020 (- 14 % for operating costs, due in particular to - 15 % for their workforce).

Going forward, the company remains cautious, but expects anyway an increase of its earnings in FY 21.

The valuation remains surprising for a company which is still at the early stage of the improvement (ad market just began to rebound) :
- EV/EBITDA 20 of 3.25 x (excluding governmnet wage subsidies),
- free cash flow yield of 17 % (after the impact of lease and excluding wage subsidies).
The company is also expected to begin to pay a dividend from H2 21.
Given their indications for payout and based on their FY 20 results, I expect them to pay between 12.6 and 21 m, which corresponds to a dividend yield of 8 % to 13 %.

Please note that the company reports in NZD and I used market cap in AUD for valuation figures, so there may be some adjustment needed in the figures above.

Lastly, given the interests of the company, it is not a surprise to learn today that Osmium continues to regularly increase its holding. They have now 17 % of NZME (vs 15.98 % before).