"They said they would maintain a payout ratio of 50% at cap raising a while back for at least a few years" - The current payout ration is currently at about 60%.
"earnings are increasing profit 3.5% from interest savings alone" - I think you need to tax adjust tax if we're talking earnings. Reducing FY14 interest by 10% would serve to increase earnings by 2.3%. If costs increase in line with inflation as flagged by management, and revenues decline in line with recent trends a 10% decline in interest expense won't be enough to increase overall earnings.
"It'd have to have a PE around 5 to be value accretive against SWMs current price." - I disagree. SWM is a combination of terrible assets (newspapers) and ok assets (TV and content), their current p/e is a combination of those assets. So, to apply a blanket p/e hurdle to any potential acquisition doesn't properly account for the quality of the assets being acquired. M&A is not just an exercise in valuation, but also an evaluation of corporate strategy and quality of assets being acquired.
There is also the consideration of what synergies could be gained through some M&A activity. The more channels through which SWM is able to distribute it's content, the greater the effect of operational leverage. PRT is the most obvious target I would think.
"It is not necessarily a good thing to have a strong balance sheet" - I strongly disagree with this statement. It is always a good thing to have a strong balance sheet. I wouldn't be investing in the first place if I didn't think the business was a going concern. If you don't think this is a long term going concern, how do you envisage extracting value? 10 years of dividends just to breakeven? It's main assets are its mastheads and TV rights which would have very little value in a liquidation scenario.
SWM Price at posting:
$1.53 Sentiment: None Disclosure: Not Held
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