There has been quite a bit of debate re SWM valuation over the past few days and thought I would put forward my perspective on this topic with some underlying calculations and assumptions to support where i have landed.
The starting point is the expected EBITDA for FY22 of $335m - $340m per the May trading update (note this figure is net of corporate costs). I have used $335m for my anlaysis.
SWM effectively has 3 divisions - Free to Air (FTA), a fast growing BVOD business and a publishing media business (WAN), plus some investment add-ons. Ignoring the investment add-ons for the moment and taking a guestimate of the split:
FTA - is facing headwinds and possibly will see flat revenue growth over the next few years with a weaker economy. Hence I am attributing an EBITDA enterprise value (EV) multiple of 5.0x to this division. My estimate of divisional EBITDA is $180m (ie before corporate costs where I have allocated $15m here) = $900m EV.
BVOD - fast growing part of the business and they are #1 in this segment and kicking good goals here with a surge of users. Am using an EBITDA enterprise value multiple of 8.0x for this division which some could argue is low, but the growth will subdue in coming years and competition could impact the "stickiness" of the users. My estimate of FY22 EBITDA is $130m (consistent with their update) = $1,040m EV.
Publishing / WAN - they are making inroads to the digital transformation of this business. Am currently using an EBITDA enterprise value multiple of only 5.0x for this division, recognising the digital transformation benefits are still to be fully determined (we may see more of this picture emerge with the financials next week). My estimate of EBITDA for this division is $45m (before corporate costs where I have allocated $5m here) = $225m EV.
Total EBITDA used for the three divisions is $355m (less corporate costs - see below) and EV of the three divisions then is $2,165m.
Corporate costs are about $20m, so at 10x multiple, deduct $200m from the above valuation = $1,965m (the higher multiple I have used is reflective of the largely "fixed" nature of these costs).
Net debt is estimated at $285m, so equity value of total enterprise is $1,680m.
Shares on issue = 1,579m and so my estimate of potential value per share based on estimated FY22 EBITDA is approx. $1.06. In reality, we will not see this share price figure unless we see resumption of a sound dividend policy with the release of FY22 financials.
GLTA & DYOR
SWM Price at posting:
51.5¢ Sentiment: Buy Disclosure: Held
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