Why SWM is worth more than $1.50 per share, page-348

Why SWM will deliver multi-bagger returns by September 2025

(a)-There is massive latent digital revenue growth that will arrive during 2025

Current consumption of 7plus during the week immediately prior to the new digital sports rights (AFL+Cricket) is approx. 451 million minutes. https://sevenwestmedia.com.au/assets/pdfs/Seven-Network-weekly-audience-report-Week-44-2024.pdf . Minutes consumed is growing at 39% per annum (page 10 of 2024 Full year results -investor presentation) https://sevenwestmedia.com.au/assets/pdfs/3.-ASX-SWM-Investor-Presentation-14-August-2024.pdf)

Taking this 451 million minutes currently viewed per week and factoring in the current growth rates of 39% per annum (noting that this growth rate DOES NOT include any benefits from the new ‘bonfires and fireworks -digital first strategy’ https://www.adnews.com.au/news/media-agencies-like-seven-s-bonfire-and-fireworks-strategy or the new digital sports rights for AFL and Cricket which are estimated to deliver over 4.5 Billion minutes of new consumption on 7plus https://www.mediaweek.com.au/seven-upfront-2024-full-digital-rights-to-afl-and-cricket-headline-sport-slate/ ) this then delivers approx. 626 million minutes viewed per week on 7plus by the end of CY25.

From this 626 million of weekly consumed minutes we can then put together some rough back of the envelope estimates for 7plus latent digital revenue growth. BVOD CPM ad rates are currently between $30 to $55 AUD https://www.mi-3.com.au/24-05-2023/bvod-versus-youtube-tv-networks-move-defence-attack-repitch-cross-network-oztam-powered . The max ad load at which 9now operates is 8 minutes of ads per hour. https://www.mi-3.com.au/06-04-2023/foxtel-medias-frain-confident-advertisers-will-pay-higher-prices-lower-ad-loads-nines .

If we assume no improvement in these CPM rates , a conservative ad load per hour of 6.5 minutes and the mid-range CPM of $42.5 is achieved then the digital revenue equates to approx. $5.73m per week (or $298m per year) Compare this to the FY23 results which was the last set of financial results in which digital revenue was split out - $179m ( This $179M also included some of the News Media Bargaining Income and 7news.com.au revenue which should also be added to the $298m figure estimated above) https://sevenwestmedia.com.au/assets/pdfs/3-Presentation-of-Year-End-Results.pdf.

It becomes clear that when you see a digital business (7Plus) which conservatively adds another $119m in revenue at extremely attractive EBITDA margins (FY 23 Digital EBITDA of 139m from digital revenue totaling $179m/ 77.6% approx EBITDA Margin) the assumption that you should price the ENTIRE business of SWM at a market cap of $230m is absolutely downright absurd.

The purpose of these above estimates is not to guess the future with absolute accuracy but rather to establish a set of likely probabilities upon which to establish the value of SWM with a large margin of safety.

Collins Street Asset Management and the very astute Michael Goldberg said recently during a podcast on Livewire markets that SWM is the cheapest media company in Australia and likely one of the cheapest in the world. https://www.livewiremarkets.com/wires/unlocking-value-beyond-consensus-in-gold-energy-consumer-staples-michael-goldberg SWMs current extremely cheap $230m market cap does not equate with a company that has rapid, profitable digital growth and anyone who bothers to look at the facts can ascertain that this sort of market dislocation serves as a wonderful opportunity to buy. As Buffett has said ‘When it’s raining gold put out the bucket not the thimble’.