Right now, you can buy >10 cents of FY25 earnings for less than 22 cents per share. This is the absolute steal of the century. Its the sort of stock price at which you fill your boots with SWM just as Spheria Asset Management did during the Covid-19 panic. The cycle once again repeats itself and Spheria Asset Management is back buying again on the way to making another fortune off SWM shares.
The feeling of being able to look into the near future (18 months time) and see the value that others have missed is made even better when you realise just how much pessimism towards SWM has reached hysterical levels.
Right now, the market is hell bent on selling SWM shares to you for extremely silly prices noting that SWM is a business that is underpinned by massive cyclical revenue inflows in FY25 and beyond. This is the exact same situation that first occurred during the Covid-19 panic- the same Analysts had the same reaction insisting that ‘this time it’s different’ ‘tv is dying’ SELL SWM!!! This was the never-ending downbeat commentary that they sent to their clients.
Like Lemmings, they followed each other off the proverbial cliff by lowering their price targets until the stage was reached that Morningstar had issued a note suggesting that the shares were likely to be worth less than 10 cents a share and the shares were a ''strong sell’’… those same SWM shares then quickly revalued to over 6 times their market price in the space of less than 12 months when the ad market bottomed and started its 2+year rebound. A six bagger in less than a year is a healthy return in anyone's book- yet here we are again with the opportunity to make multibagger returns off SWM in less than 18 months. (easily a 3+ bagger in 18 months)
Last week Michael Stephenson- Nines chief sales officer provided an update on the ad market to adnews.com.au https://www.adnews.com.au/news/nine-we-are-close-to-the-bottom-of-the-advertising-market "The economic conditions that we operate in are still difficult," Nine's Stephenson told a briefing of market analysts, following the results.
"What I am increasingly more confident about, however, is that we are, if not at the bottom, certainly very close to the bottom of the of the ad cycle."
Money has always been made by buying cyclical businesses at the bottom of the cycle. Frankly it isn’t different this time- Take a look at a company like MMA Offshore ASX:MRM if you want to see what buying a cyclical company at the bottom of a cycle is like- as market rates improve (whether that’s offshore vessel day rates or ad slots) the profitability of the business shoots dramatically higher due to the largely fixed cost base.
Advertisers buy ad slots on the basis of return on investment (ROI). This ROI depends on eyeballs watching the content. Linear tv continues to shrink and BVOD/AVOD continues to expand. This doesn’t depend on whether analysts love the story (in fact it doesn’t even depend on whether shareholders buy the shares). As this continues however the business slowly transforms from a shrinking linear tv business to a digitally led BVOD business. This brings with it greatly expanded margins which are 2 times that of linear tv on the basis that BVOD enables advertisers to more accurately target the audience demographics that they wish to sell to.
An estimated 50 per cent of TV viewing is expected to be digital by 2027 up from 20 per cent currently. disallowed/business/companies/network-bosses-argue-against-tv-manufacturers-clipping-their-ticket-20240223-p5f7bb.html. This shift to digital is game changing for both margins and improvement in the share price multiple as the digital BVOD business is a fundamentally better business.
Legislative changes such as the prominence legislation ensure that Free to Air 'Total TV' continues to be found and consumed by audiences in ever growing numbers. Substantial transformation rarely looks neat and tidy from the outside and yet the only way for SWM to compound its capital effectively is for this sort of process to take place. As I posted previously https://hotcopper.com.au/threads/up-or-down.5555400/page-5222?post_id=72224964 the view endorsed by Stanley Druckenmiller is that when investing in stocks you are not buying the stock of today but rather you are buying the stock as it will be in 18 months’ time.
In 18 months time
• the ad market recession will have finished and the ad market will have grown to all new highs (as it has after every single prior ad market recession) https://clients3.weblink.com.au/pdf/SWM/02661331.pdf
• dividends will have been reinstated likely at the rate of 4 cents per share (or a yield of 18% per share at current prices)
• the cost base will have been cut by a minimum of $60m (maybe even greater as detailed by SWM in the latest earnings release)
• the share price will be much, much, much higher
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett
SWM Price at posting:
22.0¢ Sentiment: Buy Disclosure: Held
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