This entire thread seems to focus on basic ratios...
Sure, MC is ~$715m + $295m net debt (incl. PRT) = ~$1.01bn
They have a small investment portfolio with assets I've no real interest in... but given recent market conditions, I'd put it at $60m (was $85m).
That leaves ~$950m of business.
They've given us some info:
- $340m forecast EBITDA (Taking upper end, as they keep upgrading)
- This includes 2H from PRT, and $5m cost synergies
Adjusting for a full year of PRT (another $15m) + another $5m cost savings/synergies, that should leave them with $360m EBITDA. Provided conditions remain constant.
D&A ~$35m total ($10m PRT, prob overcooked it a little)
That leaves ~$325m EBIT
Refinancing of the new facility gives them a rate of BBSY + 2.25%. Using a 1% cash rate and $350m drawn, that leaves them with finance costs of ~$12m
PBT = $313m
PAT = $219.1m
Given market pricing and excl the investment portfolio, that puts them at less than 5x EV/PAT, using that figure (also includes debt).
Which leaves the question - how bad do things have to be for this pricing to be accurate?
Things we know:
- COVID increased FTA viewing, whilst FTA advertising dropped
- Subsequently in 2021, advertising revenues increased (and all boats were floated - PRT, NEC, SWM, etc.)
- Whilst ad spend is still elevated (reading market commentary), the expectation (according to 'analyst' reports) is this will drop.
Given linear TV will, over a longer time, drop more than the rest, we can easily expect a 25% drop over 5 years.
(For reference, ad spend in total dropped 9% in 2008, 13% in 2020 when COVID hit)
However, there's the 7digital business, doing something like this:
The 7digital business did EBITDA of
$76m for 1H22, compared to $60m for the entirety of FY21. They're forecast to do $130m for the FY (see this link:
https://tinyurl.com/3thhxyp4)
Given The West does ~$35-40m EBITDA , that leaves ~$180m of EBITDA for the remainder of the biz.
Whilst the ad market will move up and down with the economy, the shift to digital is still occuring. FB/Google/YouTube, etc are all quite dominant already. BVOD is still quite immature... And the two dominant forces here are Channel 7 and 9 (excl. Foxtel, which is more a Subscription than BVOD offering)
I understand that content rights are paid for by Linear TV for the most part, so those figures may be off. But there may be sufficient growth in BVOD/digital to offset the majority of the legacy biz.
Playing this out, you may get something like this:
FY22:
Legacy biz: $180m
Digital: $130m
The West $35m
Total: $345m EBITDAFY27:
Legacy biz: $80m (-55% over 5 years) [20% EBITDA margins - Revenue of $400m.... a BIG drop] - note NEC EBITDA margins are mid 30's at the moment
Digital: $180m (+38% over 5 years)
The West: $10m (-71% over 5 years)
Total: $270m EBITDA= $230m EBIT
= $200m PBT
= $140m PAT
That's less than 7x... and we've modelled some serious damage to Linear TV and The West.
The big unknowns are:
- How much do content rights cost in 5 years, when FTA TV revenues drop? (Maybe Digital covers the bill?
- Is my take on op leverage above even remotely accurate? (not much given within the report b/w legacy and digital cost base)
- Will The West really take that much of a beating?
Either way, they're some fairly gloomy scenarios. And even at the end of that, we're turning a 14% FCF (PAT) yield...
Seems insane.
FWIW - you can also forecast a best case scenario, where Linear TV is flat-ish and 7Digital follows that BVOD curve... (In the short term, this seems more likely given Netflix are turning the screws on price and sharing accounts).
If you notice anything way out in what I've calculated above, please point it out. I've only recently purchased a small position.
EDIT: The large stakeholder (Kerry Stokes) makes me far more comfortable here, as it's more likely legacy assets will be used as a cash cow, rather than empire building by management.
(20min delay)