Media sector - Macquarie · TV ratings - Nine doing better in early ratings trends: Nine has...
Transcript of Media sector - Macquarie · TV ratings - Nine doing better in early ratings trends: Nine has...
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AUSTRALIA
Fig 1 A/NZ Media Coverage
Ticker Recc. Price target Close Price REA Outperform $63.50 $55.22 CAR Outperform $13.20 $11.20 SEK Outperform $16.50 $15.13 NEC Outperform $1.25 $1.01 APN Outperform $3.35 $2.67 NWS Outperform $20.40 $17.11 SXL Neutral $1.30 $1.29 SWM Neutral $0.80 $0.68 TEN Neutral $1.00 $0.55 FXJ Restricted Restricted $0.95 OML Restricted Restricted $4.43
Source: FactSet, Macquarie Research, March 2017, prices as of 8 March
Fig 2 EPS changes
FY17 FY18 FY19
NEC -2.4% -2.1% -2.0% REA +0.4% +0.6% +0.5%
Source: Macquarie Research, March 2017
Fig 3 Recommendation changes
Current Previous
NEC Outperform Neutral
Source: Macquarie Research, March 2017
9 March 2017 Macquarie Securities (Australia) Limited
Media sector Core strength Event
We review the Media sector in the wake of the recently completed reporting
season. Key picks remain concentrated in the Online Classifieds space: REA,
CAR and SEEK, as well as APN News & Media. In addition, we upgrade NEC
to Outperform primarily on improved early-season ratings performance.
Impact
Online marketplaces - Structural yield improvement for the “core” bodes
well for medium-term growth. Volume trends mixed: At a high level, SEK,
CAR, REA and Domain achieved 10%, 7%, 21% and 19% growth in yields for
their respective core revenue segments in 1H17. We see this as a key
reporting-season takeaway that bodes very well for medium-term growth.
Separately, job ad volumes are tracking well (up 3% in 1H17 and improved in
January), while real estate listings are more subdued. We expect a stable
volume outcome in 2H for RE listings.
Follow the margin – it points to strong share prices: Margin improvement
has been a key driver of share prices for Online names historically. REA has
flagged high incremental margins for 2H17, which should be a positive and
could still surprise on the upside. CAR broadly held core margins steady,
although its Group margin has been heavily diluted by acquisitions and
Stratton’s decline. SEK Domestic saw some margin dilution, but still delivered
EBITDA growth of 9.7% given strong revenue trends.
Key adjacencies/investments disappointed: REA’s Asian operations were
a disappointment in the half due to re-investment, competition and macro
headwinds. Stratton’s business model has come under significant pressure
due to the competition regulator scrutinising a key supplier. SEEK has exited
the bulk of its core Learning operations. All three businesses dragged on
reported earnings and growth rates in the half, but should be less problematic
going forward.
TV ratings - Nine doing better in early ratings trends: Nine has bounced in
2017 after a poor start to 2016, which bodes well for reclaiming revenue
market share later in the year.
Licence Fee cuts on the table for May budget: Scope exists for licence fee
cuts to be part of the May budget. Nine would get the largest relative EPS
uplift from any reduction in fees, followed by SWM and SXL.
Outlook
Re-iterate OP on REA, CAR and SEK. All three are showing strong
momentum in their core business drivers, are positioned for continued growth
over the next few years, and are trading at a discount to 3-yr rolling average
PE Rels. CAR is the cheapest of the three, REA will see the best operating
momentum near-term, while SEK has, in our view, been establishing a strong
platform for longer-term value creation subject to execution.
Upgrade NEC to Outperform. Improved early-season ratings set a good
platform for monetisation as the year progresses and an offset to industry
headwinds, while the potential for licence fee cuts offers further upside
optionality. Underlying cash conversion will be below par over the next few
years as NEC exits WB, but this is offset by other working capital adjustments
and the Willoughby sale, suggesting a high percentage of earnings will still be
distributed to shareholders via dividends. TP increased 15cps to $1.25/sh.
Macquarie Wealth Management Media sector
9 March 2017 2
Overview
At a high level, we thought it was a very strong reporting season for the Online names (SEK, CAR,
REA), as they delivered double digit revenue growth in core business segments, and converted
this to another half of good earnings upside in those operations. Most critically, improvement in
yields looks structural.
This should give investors increased confidence in the medium-term outlook for these names and
underpin earnings multiples reflective of this.
Analysis in this note highlights a few key trends and takeaways:
As mentioned, Domestic online marketplace verticals are driving significant revenue growth
from yield, and importantly, by non-price factors such as product mix, and prominence
products.
Against that, volume trends are fairly mixed. Job ad volume data is stable and encouraging.
House listing volumes still appear subdued relative to historical levels. Inquiry volumes were
a positive for CAR in the December half, however forward visibility of this metric is limited.
Our analysis shows incremental margins can be meaningful share price drivers over time.
These have broadly stabilised at SEK, and are positioned to grow in 2H17 for REA. CAR’s
margins are being diluted at a Group level but remain stable for its Domestic Core business.
While valuation metrics for the online names are not cheap in nominal terms, all three are
trading below 3-year rolling PE Rel levels. Coupled with a robust earnings outlook into FY18
for all three, we see further share price upside.
We have upgraded our REA valuation from $60/sh to $63.50/sh following modelling
adjustments. Our CAR and SEK target prices are unchanged at $16.50 and $13.20
respectively.
For traditional media, we expect a continuation of trend for segment growth in 2H17, albeit at
more subdued levels. We see TV ad markets down 2% in the June half (-4.5% in 1H), Out of
Home up 5% (+13.0%), and Radio +3.0% (+1.5%).
Despite TV headwinds continuing, we upgrade NEC to Outperform. It has had a better-than-
expected start to the TV ratings season, which historically has been a leading indicator to
share price performance. Further upside may exist if TV licence fees are cut as part of the
May budget. We have upgraded our target price to $1.25/sh from $1.10/sh, offering a TSR of
33.1%.
Licence fee cuts should benefit all TV and radio operators if they come through. The
greatest positive leverage to any changes is with NEC, followed by SWM and SXL.
Fig 4 A/NZ Media coverage
Currency Ticker Macq Share Target Upside/ Yield TSR
Recc. Price (lcy) Price (lcy) Downside FY1
APN News & Media A$ APN Outperform $2.67 $3.35 25.5% 3.4% 28.9% Carsales A$ CAR Outperform $11.20 $13.20 17.9% 3.5% 21.4% Fairfax Media A$ FXJ Restricted $0.95 Restricted Restricted 4.2% Restricted News Corp A$ NWS Outperform $17.11 $20.40 19.2% 1.6% 20.8% Nine Entertainment Co A$ NEC Outperform $1.01 $1.25 24.4% 8.7% 33.1% oOh!media A$ OML Restricted $4.43 Restricted Restricted 3.6% Restricted REA Group A$ REA Outperform $55.22 $63.50 15.0% 1.6% 16.6% SEEK Limited A$ SEK Outperform $15.13 $16.50 9.1% 2.8% 11.9% Seven West Media A$ SWM Neutral $0.68 $0.80 17.6% 7.2% 24.9% Southern Cross A$ SXL Neutral $1.29 $1.30 0.8% 6.0% 6.8% TEN Network Holdings A$ TEN Neutral $0.55 $1.00 83.5% -% 83.5%
Note: Fairfax Media and oOh!media currently on research restrictions. Source: Macquarie Research. Data at 8 March 2017.
Macquarie Wealth Management Media sector
9 March 2017 3
Yield trends underpin medium-term growth profile for Online names
In our view, it was a strong reporting season for the online names.
Most critically, all four online names delivered strong core business revenue outcomes, while SEK,
CAR and REA delivered strong EBITDA growth outcomes from that base. This is summarised in
Figs 5-7 below.
Fig 5 SEEK: Domestic revenue/EBITDA growth
Fig 6 CAR: Core Domestic revenue/EBITDA growth
Source: Company source, Macquarie Research, March 2017 Source: Company source, Macquarie Research, March 2017
Fig 7 REA: Australia revenue/EBITDA growth
Fig 8 Domain: Digital revenue/EBITDA growth
Source: Company source, Macquarie Research, March 2017 Source: Company source, Macquarie Research, March 2017
Notably, volume growth for all these verticals was either subdued (SEEK, CAR) or a substantial
headwind to growth (REA, Domain). The highlight, in our view, was the level of yield growth being
generated by these operators from a combination of price rises, improving product mix, and
increased take-up of prominence products (refer Fig 9).
The importance of this is that it means these online vertical marketplace operators have scope to
drive revenue growth in their businesses outside of being dependent of structural or cyclical
volume growth.
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Macquarie Wealth Management Media sector
9 March 2017 4
Fig 9 Core business revenue growth is now primarily being driven by yield
1H17 revenue growth
Volume Yield -Price
Yield -Other
Drivers of "Other" category
SEEK: Domestic +13% +3% +3% +7% Other includes 2% mix shift and 5% from growth in prominence
products. CAR: Dealer revenues +10% +3% +4% +3% Other is primarily take-up of prominence products. REA: Resi depth revenues +14% -7% ----- +21% ----- Other includes price rises and improving mix/depth product adoption Domain: Depth revenues +12% -7%* ----- +19% ----- Other includes price rises and improving mix/depth product adoption
*Note: National decline was ~7%. Domain revenues are more heavily skewed to NSW and Victorian markets which saw larger declines than the national average.
Source: Company sources, Macquarie Research, March 2017
Fig 10 Breakdown of SEEK Domestic revenue growth drivers
Source: Company sources, Macquarie Research, March 2017
Keeping track of volumes: Jobs still solid, property still soft
Job ad volumes remain robust, with encouraging trends toward the end of the year, even if they
are not the most active hiring months for many businesses. WA looks to have stabilised and about
to inflect back to ad volume growth, while trends in Queensland also appear to have improved.
The key NSW and Victorian markets remain positive.
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Volume Price Mix Prominence Talent Search Total
% ch vs pcp % ch vs pcp
Structural shift away from dependency on pure Volume and Price as drivers
Macquarie Wealth Management Media sector
9 March 2017 5
Fig 11 SEEK Employment Index (% ch vs pcp)
Fig 12 SEEK Employment Index (% ch vs pcp)
Source: Company source, Macquarie Research, March 2017 Source: Company source, Macquarie Research, March 2017
For Real Estate listings, near-term trends are hard to read following a shift in methodology by
CoreLogic, which may be impacting growth rates. Domain noted volume declines of ~7% in 1H17
and our channel checks suggest January ended up either slightly down or flat.
We expect that listing volumes will be robust across the half. From a seasonal perspective, a later
Easter may have impacted January volumes, but should support better trends for February and
March. In addition, comps are very weak for May and June given the Election impact last year. We
assume flat volumes for the current half.
Fig 13 New listing volumes were weaker in the December half…
Fig 14 New listing volumes were weaker in the December half…
Source: CoreLogic, Macquarie Research, March 2017 Source: CoreLogic, Macquarie Research, March 2017
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Macquarie Wealth Management Media sector
9 March 2017 6
Fig 15 … particularly in key East Coast markets
Fig 16 … particularly in key East cost markets
Source: CoreLogic, Macquarie Research, March 2017 Source: CoreLogic, Macquarie Research, March 2017
Following the incremental margin
Post reporting-season, we thought it was worth looking into the performance and outlook of
incremental EBITDA margins (i.e. the % of incremental revenue that is converted to EBITDA in a
period).
This is an important metric, as sentiment around margins has historically been an
important driver of share price performance for Online names (refer Figs 17-19). For
example, a sharp pick-up in incremental margins for SEEK in CY2014 led to a near-doubling of its
share price, however when investment levels unexpectedly picked up and margins retracted in
FY15, SEEK’s shares fell 28%. Similarly for Carsales, its share price has not progressed
materially since flagging structural margin pressure in its business at its FY14 result. There are
some similar trends at REA, although broadly speaking it has delivered fairly consistent
incremental margins until recently.
Key takeaways from reporting season:
SEEK’s incremental margin of 44.1% was below its existing business margin of ~55%. After
a period of catch up spend, SEEK has – in the last 2 halves – managed to offset higher
investment with revenue delivery, and hence EBITDA still grew by 9.7% for the segment.
The improving yield story is a part of this, and if it can maintain this dynamic, it is well
positioned to sustain growth going forward. We expect yields to hold up, supporting this
dynamic.
REA has disappointed in the two most recent halves with respect to incremental margin
delivery. Some of this is timing related, but it is also impacted by weaker than expected
volumes. REA manages its business to drive margin expansion every year (“positive jaws”),
and has pulled back on cost growth to achieve this this year. Combined with some timing
impacts around marketing spend, REA is well positioned for strong incremental margin
delivery in 2H17 and to take strong momentum into FY18, which bodes well for the stock.
CAR’s margin story is a bit more nuanced. Its expansion into new verticals is necessarily
dilutive to margins, as AutoInspect, Tyresales and Stratton all operate at very low margins
relative to the ~61% Domestic Core margin. Stratton’s operational issues have compounded
that and new International businesses are also dilutive at a Group level. Top line growth
from these areas will continue to exceed Domestic growth, and hence Group margins will
remain under pressure. Against that, the Domestic Core business margin has been fairly
stable, as shown in Fig 20. A slightly softer outcome in 1H17 needs to be balanced against
the 1H16 result, suggesting it is partly a timing factor.
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Macquarie Wealth Management Media sector
9 March 2017 7
Implications: REA looks ready to convert a large part of 2H revenue growth to EBITDA, which will
support earnings and also sentiment ahead of the next result. SEEK's margins have stabilised, but
can be volatile as it varies its investment rate. CAR will remain mixed. While lower margin revenue
streams will continue to grow faster than the core, the impact on the business should moderate on
the assumption (a) that margins improve in these operations to some extent as they scale, and (b)
Stratton declines moderate.
Fig 17 SEK (Domestic): Significant movement in share price has followed shifts in incremental EBITDA margin
Fig 18 REA (Domestic): About to deliver a step-up in incremental margins in 2H
Source: Company source, Macquarie Research, March 2017 Source: Company source, Macquarie Research, March 2017
Fig 19 CAR (Domestic): CAR share price has “stalled” since lower margins were flagged at the FY14 result
Fig 20 CAR (Domestic Core): …Even though Domestic Core margins have remained very healthy throughout
Source: Company source, Macquarie Research, March 2017 Source: Company source, Macquarie Research, March 2017
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SEK shares fell from $18.54 high to $13.40 post these two results
SEK shares rose from $9.20 to $17.47 post these two results
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Sell-off post weak 2H16 margins... Could bounce following margin
bounce in 2H17?
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CAR shares rallied from $5 to $11 as margins expanded through to 2H14...
...but have traded sideways since flagging Domestic investments would impact margins from FY15.
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Macquarie Wealth Management Media sector
9 March 2017 8
We see valuation upside for each of SEK, REA and CAR
We see valuation upside for each of SEK, REA and CAR at current levels, based on our
DCF/SOTP analysis. From a multiples perspective, all three are well placed for continued core
earnings growth into FY18, which should support stock price growth as the market increases focus
on these multiples over the next few months. REA might have the most potential of the three for
near-term multiple expansion given the likely improvement in margins into 2H.
Against this backdrop, and also reflecting minor modelling adjustments, we have raised our REA
target price from $60 to $63.50/sh. Our SEK and CAR target prices are unchanged.
Fig 21 A/NZ media comps
Ticker Market Macq Share Target EV/EBITDA PER Div Yield
Cap (lcy, m) Recc. Price (lcy) Price (lcy) FY1 FY2 FY1 FY2 FY1 FY2
TV/Radio Seven West Media SWM $1,025 Neutral $0.68 $0.80 5.9x 5.8x 6.9x 6.8x 7.2% 7.3% Nine Entertainment Co NEC $915 Outperform $1.01 $1.25 6.4x 5.7x 8.9x 8.5x 8.7% 9.4% TEN Network Holdings TEN $209 Neutral $0.55 $1.00 174.5x -38.4x nmf nmf 0.0% 0.0% Southern Cross Media SXL $969 Neutral $1.29 $1.30 7.5x 7.3x 10.8x 10.6x 6.0% 6.6% APN News & Media APN $790 Outperform $2.67 $3.35 7.1x 6.5x 11.7x 11.1x 3.4% 3.6% Sky Television SKT $1,444 Neutral $3.73 $4.00 6.1x 6.3x 13.1x 13.3x 8.0% 6.4% Average: TV/Radio (ex-TEN) 6.6x 6.3x 10.3x 10.1x 6.7% 6.7% Publishing/Diversified News Corp (US) NWSA $7,588 Outperform $12.66 $15.10 6.2x 5.2x 29.2x 21.0x 1.6% 1.6% Fairfax Media FXJ $2,127 Restricted $0.95 Restricted 8.7x 8.5x 14.9x 15.3x 4.2% 4.2% Average: Publishing/Diversified 7.4x 6.8x 22.1x 18.2x 2.9% 2.9% Internet SEEK Limited SEK $5,294 Outperform $15.13 $16.50 15.1x 13.5x 26.0x 24.2x 2.8% 2.9% Carsales CAR $2,685 Outperform $11.20 $13.20 16.1x 15.1x 23.4x 21.7x 3.5% 3.8% REA Group REA $7,256 Outperform $55.22 $63.50 19.0x 15.7x 30.8x 24.6x 1.6% 2.0% TradeMe TME $2,129 Neutral $5.36 $5.30 14.5x 13.3x 23.3x 21.2x 3.3% 3.8% Average: Internet 16.2x 14.4x 25.9x 22.9x 2.8% 3.1% Out of home oOh!media OML $698 Restricted $4.43 Restricted 9.1x 8.6x 15.9x 15.5x 3.6% 3.7% APN Outdoor* APO $933 n/a $5.60 n/a 10.5x 9.5x 16.4x 14.7x 3.6% 4.0% Average: Out of home 9.8x 9.0x 16.2x 15.1x 3.6% 3.8% Average - A/NZ Media (ex-TEN) 10.2x 9.3x 17.8x 16.0x 4.4% 4.6% Median - A/NZ Media (ex-TEN) 8.7x 8.5x 15.9x 15.3x 3.6% 3.8%
*APN Outdoor not covered by Macquarie; data based on Bloomberg consensus. Fairfax Media and oOh!media currently on research restrictions. TME covered by Daniel Frost. SKT covered by Warren Doak. Source: Macquarie Research, Bloomberg. Data at 8 March 2017.
Fig 22 SEK valuation overview
Headline Seek Seek share Multiple Valuation Value per
A$m FY17e EBITDA
Share (%) FY17 EBITDA x A$m share ($A)
Domestic Employment 196.8 100% 196.8 17.0 3,345.2 $9.48 Zhaopin 86.6 60% 52.0 17.0 884.6 $2.51 Early stage -21.0 100% -21.0 nmf 25.0 $0.07 Brasil Online 29.6 100% 29.6 12.0 355.2 $1.01 SEEK Asia 72.0 86% 62.1 18.0 1,117.7 $3.17 OCC Mexico 7.1 98% 7.0 18.0 125.4 $0.36 International overheads -4.2 100% -4.2 10.0 -42.0 -$0.12 Sub-total: Consolidated 366.9 322.3 18.0 5,811.1 $16.46 Other investments 416.0 $1.18 Target enterprise value 6,227.1 $17.64 Net debt -364.1 -$1.03 Adjustments to net debt balance -95.8 -$0.27 Adjusted net debt -459.9 -$1.30 Equity value 5,767.3 $16.34 Target price $16.50
Source: Macquarie Research, March 2017
Macquarie Wealth Management Media sector
9 March 2017 9
Macquarie vs Consensus
To give additional context, we do note in Figs 23 and 24 that our estimates are modestly ahead of
consensus for CAR and SEK (mostly for FY18), while broadly in line with consensus for REA. In
the case of SEK’s EPS, this could be exaggerated by the treatment of amortisation of PPA, which
we remove from adjusted earnings.
For NEC, we do see upside to consensus earnings for FY18 and FY19 based on our current
forecasts.
Fig 23 EBITDA estimates: Consensus vs Macquarie
EBITDA FY1 FY1 FY1 FY2 FY2 FY2 FY3 FY3 FY3
Macq Consensus Var Macq Consensus Var Macq Consensus Var APN 132.9 130.8 1.6% 143.2 138.6 3.3% 151.1 146.8 3.0% CAR 177.3 178.9 (0.9%) 187.9 196.1 (4.2%) 202.5 207.2 (2.2%) FXJ 269.6 270.4 (0.3%) 272.7 272.1 0.2% 274.8 279.0 (1.5%) NEC 174.2 176.5 (1.3%) 180.8 175.8 2.9% 172.3 155.7 10.7% OML 91.6 89.2 2.6% 94.1 97.0 (3.0%) 95.4 102.7 (7.1%) REA 385.0 387.4 (0.6%) 461.4 455.5 1.3% 511.1 522.2 (2.1%) SEK 370.4 376.4 (1.6%) 409.7 422.8 (3.1%) 460.9 470.9 (2.1%) SWM 288.9 298.8 (3.3%) 280.7 284.8 (1.4%) 262.2 262.2 0.0% SXL 177.6 177.7 (0.1%) 180.1 180.6 (0.3%) 179.3 180.7 (0.7%)
Source: Bloomberg, Macquarie Research, March 2017
Fig 24 EPS forecasts: Consensus vs Macquarie
EPS FY1 FY1 FY1 FY2 FY2 FY2 FY3 FY3 FY3
Macq Consensus Var Macq Consensus Var Macq Consensus Var APN 22.7 22.1 2.9% 24.1 23.4 3.1% 25.1 24.4 2.9% CAR 47.8 48.6 (1.7%) 51.7 54.5 (5.1%) 56.9 59.5 (4.4%) FXJ 6.4 6.3 1.0% 6.2 6.1 1.7% 6.3 6.5 (2.6%) NEC 11.4 11.1 2.3% 11.8 11.2 5.6% 11.1 10.6 4.4% OML 27.8 28 (0.6%) 28.6 30.8 (7.1%) 30.0 32.5 (7.6%) REA 179.1 180.2 (0.6%) 224.7 221.2 1.6% 252.7 259.7 (2.7%) SEK 58.1 58.6 (0.9%) 62.6 65.9 (5.0%) 71.2 74.4 (4.4%) SWM 9.8 10.1 (2.6%) 9.9 9.7 2.6% 9.4 9.3 0.7% SXL 12.0 11.8 1.6% 12.1 12.1 0.2% 12.2 12.1 0.6%
Source: Bloomberg, Macquarie Research, March 2017
All three Online names are trading below their 3-year rolling PE Rel average, highlighting scope for a multiple re-rate.
The three pure-play online names – CAR, SEK and REA – have traditionally traded at a premium
to the ASX 200 Industrials Index given their consistently strong and broad-based earnings growth
profile. We note that on a PE Rel basis against the ASX 200 Industrials Index, all three are
currently trading slightly below their rolling 36-month average (CAR at 9.7%, SEK at 6.9% and
REA at 8.5%).
Macquarie Wealth Management Media sector
9 March 2017 10
Fig 25 PE of CAR and ASX 200 Industrials
Fig 26 PE Rel: CAR vs. ASX 200 Industrials
Source: Bloomberg Macquarie Research, March 2017 Source: Bloomberg Macquarie Research, March 2017
Fig 27 PE of SEK and ASX 200 Industrials
Fig 28 PE Rel: SEK vs. ASX 200 Industrials
Source: Bloomberg Macquarie Research, March 2017 Source: Bloomberg Macquarie Research, March 2017
Fig 29 PE of REA and ASX 200 Industrials
Fig 30 PE Rel: REA vs. ASX 200 Industrials
Source: Bloomberg Macquarie Research, March 2017 Source: Bloomberg Macquarie Research, March 2017
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30x
35x
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
SEK-AU ASX 200 Industrials
PER
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
SEK-AU Rolling 36M Mean
PE Rel vs ASX 200 Industrials Index
0x
5x
10x
15x
20x
25x
30x
35x
40x
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
REA-AU ASX 200 Industrials
PER
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
REA-AU Rolling 36M Mean
PE Rel vs ASX 200 Industrials Index
Macquarie Wealth Management Media sector
9 March 2017 11
We note there is looks to be a linear correlation between PER and 3-yr EPS CAGR forecasts for
online market place verticals, as illustrated by Fig 31. This particular comparative suggests REA,
SEK and CAR are all trading close to fair value against international peers. EV/EBITDA analysis is
less conclusive.
Fig 31 PER vs. EPS CAGR (3yr)
Fig 32 EV/EBITDA vs. EBITDA CAGR (3yr)
Size of marker reflects market cap (USD). Source: Company source, Macquarie Research, March 2017
Size of marker reflects market cap (USD). Source: Company source, Macquarie Research, March 2017
Fig 33 P/FCF vs. FCF CAGR (3yr)
Fig 34 FCF yield (FY1)
Size of marker reflects market cap (USD). Source: Company source, Macquarie Research, March 2017
Size of marker reflects market cap (USD). Source: Company source, Macquarie Research, March 2017
Fairfax Media
REA Group
Rightmove
Scout24
Trade Me Group
ZPG
Auto Trader
Carsales
Seek
Median
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
10x 15x 20x 25x 30x 35x
EPS CAGR (3yr)
PE (FY1)Fairfax Media
REA Group
Rightmove
Scout24
Trade Me Group
Zillow
ZPG
Auto Trader
Carsales
Seek
Median
0%
5%
10%
15%
20%
25%
30%
5x 10x 15x 20x 25x 30x 35x
EBITDA CAGR (3yr)
EV / EBITDA (FY1)
Fairfax Media
REA Group
Rightmove
Scout24
Trade Me Group
Zillow
ZPG
Auto Trader
Carsales
Seek
Median
-10%
0%
10%
20%
30%
40%
50%
10x 20x 30x 40x 50x 60x 70x
FCF CAGR (3yr)
P / FCF (FY1)
2.5%
3.0%
4.1%
5.1% 5.1%
1.7%
3.3%
4.7%
4.1%
2.3%
4.1%
0%
1%
2%
3%
4%
5%
6%
FCF yield (FY1)
Macquarie Wealth Management Media sector
9 March 2017 12
Key catalysts for Online marketplace verticals (SEK, CAR, REA)
Stock Catalysts
SEK Ongoing yield growth from premium products;
Continued robust market conditions in Australia, as per ANZ Job Ad Index and SEEK Employment
Index (monthly releases);
Continued strong growth and market share gains in China (ZPIN and 51Job report quarterly);
REA Stabilisation of new home listing volumes in the half, particularly against weak comps for the current
March quarter and then in May/June. External data sources may be volatile and unreliable for
assessing these trends at the moment, so validation will be required via channel checks;
REA gives quarterly updates in conjunction with the release of News Corp’s quarter results. We
expect a strong March quarter on the back of stabilised volumes, some assistance from seasonal
factors (timing of Easter), and lower cost growth due to operational decisions and timing factors
around marketing spend;
FY18 price changes will be announced around May, which we think will underpin the yield growth
story for another year;
CAR There are few external data points that conclusively speak to CAR’s outlook, given pricing changes
have recently been locked down, and visibility of inquiry volume is limited.
New car listing volumes traditionally pick up into June due to promotional activity, and we would
expect this to occur again this year.
Further developments in the Finance industry may negatively impact on Stratton going forward.
Source: Macquarie Research, March 2017
Stan – Strong subscriber momentum continues. Ascribing invested capital as base valuation assumption.
One business that has shown further positive momentum over the half (and January 2017) was
Stan, the subscription video on demand (SVoD) JV between Fairfax and Nine. We have previously
not ascribed value to this asset given the uncertain forward outlook and competitive environment,
as well as the requirement for further capital investment by the JV partners.
While financial transparency is not available, the business does look to be broadly on track for its
plan, albeit with content and marketing investment most likely trending higher against the
backdrop of continued strong subscriber growth. Management has previously flagged that Stan
would cash flow break-even by 2HFY18.
January saw record gross subscriber adds, although net subscriber growth hasn’t fully reflected
this, given a “weaker than expected” December on the subscriber front.
To date, Stan has seen off one key competitor in Presto (FOXTEL/Seven West Media JV), and is
currently facing a very soft launch by Amazon in Australia. FOXTEL Play is increasingly being
promoted as a low-cost OTT solution, while Netflix is the market leader and continues to invest
heavily in its content.
The primary challenge going forward for Stan remains containing churn in the context of a
dynamic competitive environment and also a 100% uncontracted customer base.
There may be scope for Stan to implement price rises in time, with a $1 per month increase
equating to a 10% revenue uplift that would effectively all drop through to earnings, albeit with a
small offset from any uptick in churn.
In the context of the risks and opportunities discussed, we have taken a conservative approach to
modelling Stan, which sees continued growth in subscribers as its content library improves under
the Showtime deal, albeit against a further escalation in content costs. We have allowed for ~10%
pa cost growth in outer years (with an additional step-up in 2020 to reflect a renewal of its
Showtime deal). Reaching break-even will be a critical milestone for Stan given the operating
leverage that exists if it can grow from that point.
Macquarie Wealth Management Media sector
9 March 2017 13
Fig 35 Stan: Subscriber profile (Company presentation, October 2016)
Fig 36 Stan: Illustrative EBITDA profile
Source: Company source, Macquarie Research, March 2017 Source: Macquarie Research estimates, March 2017
Fig 37 Stan: Gross subscriber adds
Source: Company source, March 2017
Key risks to the business model include new entrants to the space, the loss of key content
agreements (such as Showtime) or content inflation given the stronger-than-expected take-up
rates in Australia.
Overall, given Stan is building scale and improving competitive positioning, we have ascribed
invested capital as a base case and risk-adjusted valuation for the business.
A DCF approach to valuation does imply some upside to this, although it remains highly
dependent on assumptions around final subscriber numbers/EBITDA and assumed terminal
valuation multiples.
FY15 FY16 FY17e FY18e FY19e FY20e
Macquarie Wealth Management Media sector
9 March 2017 14
Traditional media trends and outlook
TV
The TV industry remains under pressure. In the second half, traditional FTA TV revenues declined
by 4.5% in metro areas, although this moderated to declines of 2.7% after allowing for regional
and AVOD advertising revenues.
We expect TV revenues to remain under pressure, albeit at a slow pace in 2H17, down 2%.
Fig 38 Metro free to air TV ad market growth (% ch vs pcp)
Source: FreeTV, Macquarie Research, March 2017
Fig 39 FTA TV revenue share
Source: FreeTV, Macquarie Research, March 2017
Radio
After a couple of buoyant years, radio revenue growth moderated to 1.5% in 1H17. We are
forecasting radio ad growth of 3.0% in the second half.
(1.0%)
6.0%
9.0%
0.2%
(5.3%)
(12.6%)
(5.0%)
18.9%
16.9%
1.1%
(5.1%)
(1.9%)
(3.8%)
(0.3%)
5.0%
1.7%
(3.0%)
0.2%
(0.4%)
(3.9%)(4.5%)
(2.0%)
0% 0%
(15%)
(10%)
(5%)
-
5%
10%
15%
20%
1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17eFY18eFY19e
% ch vs pcp
35.9%
39.2%38.4%
39.1%
41.4%
38.5% 38.0% 37.9% 37.5% 37.6% 38.1%
40.0% 40.3% 40.5%39.7%
41.3%40.4%
39.5%38.5%
39.2%
40.8%
38.4% 39.0% 38.5%
33.8%32.7%30.8%
31.8%30.9%
33.2%31.9%
33.2%
35.0%33.6%
34.9% 34.5%
38.1% 37.6%38.7% 38.6% 39.2% 38.6% 38.2%
35.6% 35.0%
37.0% 36.5% 36.5%
30.3%28.1%
30.8%
29.1%27.7% 28.3%
30.1%28.9%
27.5%28.9%
27.0%25.5%
21.6% 21.9%21.5%20.1% 20.4%
21.9%23.2%
25.2%24.2% 24.6%
24.5%25.0%
15%
20%
25%
30%
35%
40%
45%
1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17e FY18e FY19eSeven Nine Ten
Macquarie Wealth Management Media sector
9 March 2017 15
Fig 40 Metro radio ad market revenues (financial year to June)
Source: Commercial Radio Australia, Macquarie Research, March 2017
Out of home
The Out of Home industry has had a more tempered start to 2017 after a period of very strong
growth in 2016. We forecast segment growth to slow to 5% this year (from 13%).
While there is still a lot of capital going into digitising billboards, we expect a lot of the growth over
the next few years will bias toward the small format/poster side, where digital investment is only
ramping up now.
Fig 41 Outdoor industry revenue growth continues
Fig 42 Quarterly growth by segment
Source: OMA, Macquarie Research, March 2017 Source: OMA, Macquarie Research, March 2017
-0.3%-0.6%
-1.9%
2.9% 2.8%
1.2%
5.0% 5.1%4.6%
7.2%
1.5%
3.0%
-4%
-2%
0%
2%
4%
6%
8%
1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17e
13.4%
20.7%19.6%
11.7%
19.6%20.6%
14.1%
20.0%
9.3%10.5%
12.5%13.2%11.6%
2.1%
0%
5%
10%
15%
20%
25%
% ch vs pcp
27%
7%
2%
7%
17%
22%
15%
10%
26%
18%
31%
14%
9% 9%
18%19%
17%
8% 7%
14%16%
6%
8%
28%
13%
0%
10%
20%
30%
40%
Road - Billboards Road - Other Transport Retail Total
% ch YoY
4Q15 1Q16 2Q16 3Q16 4Q16
oOh!oOh! (Air)APN (Air/Rail)
APN (Buses)Adshel
JC Decaux
oOh!APNQMS
Macquarie Wealth Management Media sector
9 March 2017 16
Fig 43 Digital revenue tracking at over 40% in recent months
Fig 44 Digital revenue tracking at 39.8% of total OOH revenues (CYTD)
Source: OMA, Macquarie Research, March 2017 Source: OMA, Macquarie Research, March 2017
Licence fee cuts
Annual TV and radio licence fees may be cut again in this year’s budget, after being reduced by
25% in last year’s budget. TV fees fell from 4.50% to ~3.38% and radio fees fell from 3.25% to
~2.44% for metro areas (refer our note last year, Australian media sector – Partial licence fee
cuts for broadcasters, 5 May 2016).
It is possible that licence fees will be cut to a fixed level, such as 1% or 2%. Given the starting
points are different by operator (given regional/metro and TV/radio mix), so too will the
outcomes.
We summarise the earnings and valuation impact from a 25% reduction in table 47. For
valuation impact, we have used a blunt tool, by applying estimated sector multiples for TV and
Radio stocks as a proxy (5x EV/EBITDA for TV and 7x for radio).
Any licence fee cuts would produce the greatest relative earnings and valuation benefits for Nine
and Seven. Southern Cross would also benefit, depending on the type of cut (i.e. whether it
extended equally to Radio). APN would benefit moderately, while Fairfax Media would receive
only a small benefit (given that it owns only 54.5% of MRN, which in itself is a small part of
Fairfax’s earnings base).
For example, an additional 25% cut in TV and radio licence fees would generate EPS accretion
for Nine of 6.2% and for Seven of 4.8%, and valuation uplift of 3.8% and 4.1%, respectively.
Earnings and valuation accretion for Southern Cross would be +2.5% and +2.0%, respectively.
APN earnings would rise by 1.3% and valuation by 0.9%.
Fig 45 Impact of 1ppt reduction in broadcast licence fees
EBITDA impact EPS impact Valuation impact (cps) Valuation impact (%)
TV only Radio only
TV + Radio
TV only Radio only
TV + Radio
TV only Radio only
TV + Radio
TV only Radio only
TV + Radio
NEC 4.8% n/a 4.8% 6.2% n/a 6.2% 4.78 n/a 4.78 3.8% n/a 3.8% SWM 3.4% n/a 3.4% 4.8% n/a 4.8% 3.26 n/a 3.26 4.1% n/a 4.1% TEN $5.4m n/a $5.4m 1.0cps n/a 1.0cps 7.25 n/a 7.25 7.2% n/a 7.2% SXL 0.8% 1.1% 1.8% 1.1% 1.5% 2.5% 0.88 1.71 2.59 0.7% 1.3% 2.0% FXJ n/a 0.3% 0.3% n/a 0.2% 0.2% n/a 0.22 0.22 Restricted Restricted Restricted APN n/a 1.0% 1.0% n/a 1.3% 1.3% n/a 2.91 2.91 n/a 0.9% 0.9%
Fairfax Media on research restrictions. Source: Macquarie Research, March 2017
30%
34%
41%39% 38%
40%42%
43%40%
48%
41%
33%
43%45%
0%
10%
20%
30%
40%
50%
Digital as a % of Total
7.3%
11.3%
17.0%
28.0%
39.1%
43.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
CY12 CY13 CY14 CY15 CY16 CYTD17
Digital as a % of Total
Macquarie Wealth Management Media sector
9 March 2017 17
Upgrade NEC to Outperform, with $1.25/sh TP
Ratings on the improve
Nine has had a strong start to the ratings year, with its ratings share up 8.0% for the first three
weeks of the ratings season, and increases of +15.0% and +13.9% for 16-39yo and 25-54yo
demographics respectively. Nine is cycling a disappointing start to 2016, so it will take some time
for this to cycle through to revenues – but if sustained presents an opportunity for Nine to improve
revenue share as an offset to structural industry headwinds.
Fig 47 plots the ratings changes in recent years at Seven and Nine against the corresponding
share price performance in February and March. We note that the top left and bottom right
quadrants of the chart are empty other than a single data point, suggesting that directionally there
is a strong relationship between Feb/Mar share price performance and early season ratings
performance.
Fig 46 Cumulative YTD ratings vs pcp (Weeks 7-9)
Fig 47 Directionally, early season ratings do show a relationship with Feb/March stock performance
Source: OzTam, Macquarie Research, March 2017 Source: OzTam, Macquarie Research, March 2017
Upgrade to Outperform
We upgrade NEC to Outperform with a target price of $1.25/sh up 15cps, which incorporates a
~10cps increase due to the inclusion of Stan in our valuation.
At $1.25/sh, NEC would be trading on a TV EV/EBITDA multiple of 6.0-6.3x
Potential catalysts:
Continued improvement in ratings which, if sustained, will translate to revenue share gains.
Every 1ppt of revenue share gained is equal to around $26m in net revenue to Nine, which
would add 14% to EBITDA and 18% to EPS;
Ongoing good cost control, including a previously announced program to remove $50m in
costs by FY19;
Potential upside to earnings and valuation if licence fees are cut (refer earlier discussion);
Valuation upside if Stan’s operating momentum improves and investors gain confidence in
its outlook;
The key risk remains the broader TV ad market trends, which accelerated last half.
Cash conversion weak in the half, and will remain volatile
EBITDA cash conversion was weak again for Nine in the half at 10%. If we adjust for Warner Bros
payments and the NRL pre-payment, this improves to 76%.
-6.4%
8.0%
-0.2%
-13.6%
15.0%
2.7%
-10.2%
13.9%
-2.0%
-15%
-10%
-5%
0%
5%
10%
15%
20%
7 9 10
% ch vs pcp
Total Ppl 16-39s 25-54s -20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
-10% -5% 0% 5% 10%
% ch in cum ratings (Wks
1-3)
% ch in share price (Feb-Mar)
Macquarie Wealth Management Media sector
9 March 2017 18
For FY17, we see further impacts from onerous contract provisions, given the $40.7m closing
provision that we expect will unwind during the year. There should also be a small negative
working capital increase due to the pre-payment for the new NRL deal more than offsetting the
$40m benefit (Macquarie assumption) as part of the pre-payment on the old NRL deal rolls off.
Fig 48 NEC cash conversion (EBITDA/Un-geared pre-tax cashflow)
FY14 FY15 FY16 1H17 2H17e FY17e 1H18e 2H18e FY18e 1H19e 2H19e FY19e
EBITDA (inc associates) 311.0 286.5 201.7 119.7 55.6 176.4 123.2 60.0 183.1 113.7 61.0 174.7 Operating cash flow 189.0 246.2 50.3 - 32.8 8.6 - 24.3 79.6 6.3 85.9 60.9 23.0 83.9 Add back Interest paid 65.1 18.8 13.7 4.6 6.0 10.6 4.9 4.0 9.0 4.6 5.1 9.7 Add back Tax paid 22.7 9.5 38.1 39.9 15.2 55.1 38.1 11.2 49.3 26.4 11.1 37.5 Un-geared pre-tax cashflow 276.8 274.5 102.1 11.7 29.7 41.4 122.7 21.5 144.2 91.9 39.2 131.1 EBITDA cash conversion 89.0% 95.8% 50.6% 9.8% 53.4% 23.5% 99.6% 35.8% 78.7% 80.8% 64.3% 75.0%
Source: Company sources, Macquarie Research, March 2017
In Figure 49 below, we have tried to de-construct key drivers to Nine’s cash flow over the next two
and a half years, as it will be quite volatile due to a number of lumpy cashflow items impacting the
company. These include timing of NRL pre-payment costs (in and out), exit costs related to Nine’s
old Warner Bros output deal, timing issues for licence fee payments, a build-up of working capital
given the increased focus on local content productions, and other general working capital
movements.
While cash conversion will generally remain under 100% during this period (FY17-19), this is due
to the factors discussed and we would expect it to normalise after that.
Fig 49 Detailed breakdown of working capital movements (1H17-2H19e)
$m 1H17 2H17 FY17 1H18 2H18 FY18 1H19 2H19 FY19
EBITDA 119 55 174 122 59 181 112 60 172 Warner Bros -29 -20 -49 -22 -22 -43 -22 -22 -43 Prepayment (NRL rights 2012-17, inflow) 40 40 40 40 0 Prepayment (NRL rights 2018-22, outflow) -50 -50 0 0 Onerous contract -3 -2 -5 -2 -2 0 Programming build-up -20 -17 -37 -17 -17 -33 0 Licence fee +17 -17 0 0 0 Other working capital movements -23 -10 -43 0 0 0 0 0 Total working capital movements -108 -26 -133 0 -38 -38 -22 -22 -43 Un-geared, pre-tax cash flow 12 29 41 122 21 142 91 38 129 Cash conversion 10% 53% 23% 100% 35% 79% 81% 64% 75% Underlying cash conversion 76% 17% 57% 85% 72% 80% 100% 100% 100%
Source: Company sources, Macquarie Research estimates, March 2017
In addition to these working capital items, Nine will receive $111m, net, from the sale of its
Willoughby site (1H18). As a result, despite poor underlying cash conversion, we still expect
Nine to repatriate a high percentage of earnings to shareholders via dividends over the next few
years.
Macquarie Wealth Management Media sector
9 March 2017 19
APN
The good… The not so good… The interesting…
Adshel revenue growth exceeded
market growth in CY16 in both
Australia (+19.3% vs. market at
+15.8%) and NZ (+32.6% vs. market
at +29.2%). Key drivers were share
gains (including a 3.3ppts share gain
in Australian Roadside Other),
digitisation and wider market growth.
NZ represents less than 20% of
Adshel revenue.
A key growth driver for Adshel is the
digitisation of its network
(particularly road) across Australia
and New Zealand. Digital was over
30% of CY16 revenues (up from 21%
in CY15), compared to oOh!media at
46% and APN Outdoor at 34%.
Management noted that it is
achieving a payback period of less
than two years on its digital
investment, and that premium rates
are holding.
While ARN had a weak ratings
period mid-2016, results improved
from survey 5 and ended with
another uptick in survey 8.
Management noted a strong
recovery audience at the back-end of
CY16. Management appear
confident in the year ahead for radio.
Management flagged that group
revenue in January was
comparable to strong results in the
pcp. ARN outgrew the market
(+0.8%) in January, though February
was softer. March is looking better
with strengthening briefing activity
and a growing pipeline.
The balance sheet is in much better
shape, with net debt/EBITDA of 1.2x
an improvement on 1.8x six months
ago. EBITDA interest coverage is
9.7x, and APN is operating well
within its covenants.
Radio cash conversion exceeded
90%, and is providing funds to
reinvest in outdoor, debt reduction
and shareholder returns.
The inclusion of Conversant Media
has increased APN’s digital presence
and has created cross-promotion
opportunities, with management
noting that ARN-Conversant are
winning pitches in the market.
Radio revenues fell 5.2% in 2H16
(+1.9% for the year, which was
below the market), driven by weak
mid-year ratings and
underperformances in the Melbourne
and Perth markets. On the plus side,
management was able to quickly
control costs, which fell 8.1% in
2H16 (and fell ~$10m HoH). EBITDA
margins came in at 38.2% for the
year and 41.6% for the second half.
To address the 2H16 issues,
management have hired a new
commercial director in Melbourne
and a new national commercial
director, as well as relaunched a new
show format in Perth in January.
Group costs rose in January driven
by radio content, site rental increases
and the advancement of multiple
integration projects. APN will look to
partly offset the increase in radio
talent costs with the renewed ATN
contract. Adshel costs rose by 16%
to $159.6m, although the majority of
costs were related to revenue-
generation, selling and capabilities.
HK Outdoor revenues fell by 29%
for the year (in AUD terms) driven by
weak ad market conditions and
unprofitable contracts. The onerous
Buzplay contract ends in June and
will negatively impact 1H17 earnings.
The company is targeting a return to
profitability in CY17, having
restructured the business, renewed
key contracts (Western harbour
tunnel (seven years) and Eastern
harbour tunnel (two years)) and won
the new five-year HK Tram Shelters
contract.
Adshel capex spend will be at least
$50m in CY17, subject to the
outcome of several large tenders.
Half of the capex spend will be
toward the digitisation of Adshel’s
network.
Corporate costs rose by 9.4% to
$13.9m for the year, driven by
ongoing compliance matters.
Management noted that “strong”
forward bookings and an
improving pipeline for Adshel
suggest that advertiser activity is
returning to normal levels, after a
softer January for Roadside Other
(Adshel performed in line with the
market).
Adshel will continue to invest in data,
digitisation and technology,
including an automated sales
platform as well as audience and
geo-targeting capabilities. Adshel
plans to roll out 70 digital road
screens in NZ in 1H17 (currently 150
total) and 137 in Australia in 2H17
(currently 366 in total). Adshel also
currently operates 186 Sydney
Trains digital assets. Adshel remains
on the lookout for bolt on
acquisitions.
APN have recommended the
reinstatement of the dividend at
4cps (fully-franked) (Macq 4cps).
Management noted that this amount
is at the bottom end of APN’s policy.
A key focus near-term will be
integrating APN’s radio, outdoor
and digital assets. Co-location
across all markets will be a key
driver. Revenue generation, rather
than cost out, will be the objective.
Central to this will be improving
APN’s content sharing and cross-
platform capabilities, with a focus on
video content.
Management indicated that it is in a
position to separate the Soprano
asset (possibly via IPO) when the
appropriate market conditions arise.
A potential IPO during last year was
shelved due to a weak market.
APN will re-brand and launch new
go-to-market strategies in 1H17.
APN’s debt facility matures in July
2019 and it will consider its options
over the next 12-18 months. Its
current all-in cost of debt is ~5.5%.
Macquarie Wealth Management Media sector
9 March 2017 20
CAR
The good… The not so good… The interesting…
Revenue trends were strong across
the Group, other than for Stratton, with
Domestic Core revenues up 8.2%.
Excluding Stratton, Domestic
Investments revenues grew by 58%,
in part boosted by the acquisition and
expansion of Auto Inspect.
Management commentary does
suggest Tyresales is the primary
underlying driver here. While Carsales
is building positive momentum here,
margins do remain very thin.
Dealer revenues grew by 9.9%, which
was ahead of our pre-result
expectations. Growth was spread fairly
evenly between price rises, increased
take-up of depth products, and volume
increases.
Display had another strong half, up
9.2% compared to pcp. Management
noted it is increasing native advertising
to driver growth here and counter price
deflation for banner ads and other
programmatically traded inventories.
Management is also working more
closely with OEMs, instead of being
overly reliant on agency relationships
to build this business.
Price increases in Private are
carrying through, with what appears
to be limited churn. As a result, this
change looks to be more than
offsetting the negative impact from
increasing the free add hurdle from $3k
to $5k in January in 2H.
Data & Research services continues
to demonstrate strong growth as a
category, up 10.3% - driven by both
yield and volume growth.
Outlook commentary was robust,
with management pointing to “solid
growth” across revenues and earnings
for the Domestic Core business.
Commentary on the management call
suggest there may be some scope for
margin expansion within this as cost
growth tapers in the second half.
As expected, Stratton was a drag on
this result, with revenues down 21.8%
and EBITDA down 49.4% (Finance and
Related Services segment). The issue
remains tied to changes with a major
lender, with lower volumes attracting
lower direct commissions as well as
the loss of high-margin volume
bonuses. 2H17 sounds like it will be a
period of re-investment and re-
positioning, with a view to returning this
division to growth in FY18 and beyond.
Cost growth for the Domestic Core
business was higher than expected
in the first half, up 9.0% on pcp.
Management attributed this to
increased labour charges and
marketing, with the latter partly a
timing-related impact. The absorption
of Group/International costs in some
roles also contributed. As mentioned,
commentary on the call suggested this
growth rate will taper in the second
half.
Brazil reported underlying revenues up
only 3% and underlying EBITDA
down 24% in local currency terms.
Management attributed much of this to
economic conditions in Brazil, although
the recent replacement of the CEO
suggests there are also some issues
with execution. The financial result is a
big turn-around from 6 months ago
when management flagged Brazil as a
potential “good growth contributor” in
FY17 following the trial of the lead-
based model.
New Car Listing volumes were
weaker in the second half, in part
driven by OEM policies on this matter.
There was a modest recovery toward
the end of last year (on a comparison
basis) and the early listing volumes in
2017 are broadly consistent with the
same time last year.
Capex rose 20% to $6.5m. Cash
capex rose 18% to $2.1m due to
regional office fit-outs, while a 21%
growth in capitalised labour costs
reflects technological investment in
international and adjacent businesses.
CAR’s interim dividend of 18.7cps is
up 5.1% on pcp, and equates to
82.7% of adjusted earnings per share.
The Carsales balance sheet remains
strong, with credit metrics improving
slightly over the 6 months to
December. Net debt/EBITDA
(annualised) fell by 0.03x to 1.03x,
while interest coverage increased by
0.02x to 20.6x.
Cash conversion was solid at 92.1%.
It had strong conversion in 2H16
suggesting timing differences as a
possible driver here.
Management spoke to the seasonality
in the business slightly favouring the
second half due to activity levels in
January and June being strong in 2H,
while December is a quiet period in 1H.
This was the last result that will be
delivered by co-founder and CEO
Greg Roebuck, following the
announcement of his retirement in
January. Cameron McIntyre (current
COO), replaces him in the role,
effective 17 March. We do not expect
any shift in strategy given how closely
the two have worked together over
many years.
Redbook Inspect continues to grow
and management is positive on the
differentiation this service can provide
going forward. RI now has 13 sites now
and over 40 others doing inspections
in-field. Margins will be inferior to the
core business, but we expect the
earnings contribution is positive and
will improve further as the business
scales.
Amortisation of acquired intangibles in
the half was $1.2m, consistent with
pcp.
The company continues to evolve
its Depth product strategies, seeking
to assess the scope for additional
revenues here in the context of its
primary lead-based model.
WebMotors (Brazil), distributed
BRL150m to shareholders via a
special dividend/capital reduction
(Carsales’ share ~A$18m).
Macquarie Wealth Management Media sector
9 March 2017 21
Korea achieved revenue growth of
26% and underlying EBITDA growth of
18% in local currency terms. This was
driven by dealer, private and display
revenues – with the latter up over 50%
vs pcp. Management had previously
flagged double-digit price rises would
aid this business in FY17.
Macquarie Wealth Management Media sector
9 March 2017 22
FXJ
The good… The not so good… The interesting…
Digital revenue trends at Domain
remain robust, up 15%, driven by
12% growth in depth revenues.
Domain also saw strong digital
media, developer & commercial
revenue growth. This growth partly
offset a weak market and print
revenue declines. Looking ahead,
Domain will focus on expanding into
new geographic markets, continued
depth product penetration and yield
growth.
Domain outlook commentary was
positive, with management noting
that new listings have seen some
“early signs of improvement” in
February following a weak 1H17.
ACM cost out was better than we
had anticipated, resulting in an
EBITDA figure of $43.1m (down
4.7%) that was well ahead of our
expectations. Top-line trends
remained weak (as expected), driven
by softness in both ad revenues
(down 11.3%) and circulation
revenues (down 9.9%). Offsetting
this was an 11.7% reduction in costs
across the half from the ongoing
transformation program and other
cost saving initiatives.
Macquarie Media grew EBITDA by
11.2% to $13.3m, consistent with our
expectations. Revenue growth of
1.0% for the half was slightly below
market growth of 1.2%. Cost and
operational synergies following the
merger have been implemented, with
costs up 1% for the half. EBITDA
margins expanded from 17% to 19%.
Programming and sales
improvements are expected to drive
earnings in 2H17.
Stan had over 700k active
subscribers at 13 February, with
January delivering Stan’s largest
month in sign-ups (which was
attributed to an improved program
line-up). Management reiterated that
Stan is on a clear path to profitability
and expects to be cashflow break
even during FY18. Key drivers
include exclusive rights to
SHOWTIME in Australia and Stan’s
off-line viewing feature (to be
launched in March).
Overall top-line growth for Domain
slowed in the half (+5.8%), driven by
weak listing trends in the December
half plus an 11% decline in printing
revenues within the business.
Domain costs were up 19%
(including +44% growth in digital
costs, +27% ex-acquisitions and
one-offs), resulting in negative
EBITDA growth for the period. The
growth in digital costs was split
across investment in staff,
technology and product. Print cost
declines of 11% reflected cost out in
that area of the business. Domain
expenses in the second half will
moderate to ~13%, taking pressure
off the earnings line.
The trading update indicates top-
line trends have remained soft at the
beginning of this half, although the
decline in revenue trends has
moderated from January into
February. Specifically, group
revenues fell ~10% in January in a
“slower than usual start across the
media industry”, while revenues were
down ~6% in the first two weeks of
February. As per previous updates,
cost savings will continue to be
implemented across the Group.
Metro Media was a bit weaker than
we had anticipated (EBITDA down
12.2% to $27.7m), driven by a 16.6%
decline in ad revenues (with total
revenues down 8.2%). This was
partly offset by cost out of 7.6%
across the half (including a 9% fall in
publishing costs, with a similar run-
rate expected in 2H). Digital revenue
growth of 22% largely offset print
circulation revenue declines.
NZ Publishing EBITDA fell by 6.2%
to A$25.9m. Ad revenues fell 10%
and circulation revenues fell 8% (lcy),
offset by an 8% reduction in costs.
Digital revenues grew by 21%, and
the business will continue to invest in
digital and events.
Fairfax announced a strategic
review of Domain in preparation for
the potential separation of Domain
into a listed entity.
Under any potential deal, Fairfax
would retain a controlling 60-70%
stake in Domain, and the remainder
would be held by existing Fairfax
shareholders (with management
stating that the current intention is
that no new capital would be raised).
Any potential separation would be
implemented this CY. Antony
Catalano would stay on as Domain
CEO. Any transaction is subject to
multiple conditions including a
“satisfactory outcome” with the ATO
and shareholder vote.
If the transaction completes, Domain
would incur post-separation costs
of $8-10m (comprising $4m board,
listing and other costs, plus $4-6m
transfer of corporate costs and also
commercial agreements between
Domain and Fairfax).
Fairfax declared an interim dividend
of 4cps, in line with our expectations.
The dividend was 70% franked.
Net debt at 31 December 2016 was
$112m, implying net debt/EBITDA of
0.4x (vs 0.3x six months earlier).
EBITDA interest coverage grew to
31x (vs. 25x six months ago).
Fairfax is developing a next
generation publishing model which
will increase the focus on digital
publishing, but also see daily print
publications continue for “some years
yet”. Management believe this is the
best outcome based on current
advertising and subscription trends.
Fairfax expects the NZ Commerce
Commission to hand down its
determination on the proposed
merger of Fairfax NZ and NZME by
mid-March.
D&A fell 47.4% to $18.3m in the half
due to the previous write-down of
assets. Management expects full-
year D&A to be at the lower end of
the $40-50m range previously stated.
Macquarie Wealth Management Media sector
9 March 2017 23
OML
The good The not so good The interesting Revenue and gross profit grew
strongly for the year, up 20.1% and
30.3%, respectively, ahead of our
estimates of 14.7% and 28.4%.
Gross margins of 43.1% for the
year and 44.8% for the second half
were both well up on pcp due to
operational leverage.
EBITDA of $73.5m was at the top
end of the recently upgraded
guidance range of $72-74m (Macq
$73.7m), representing growth of
27.4%. Key drivers included strong
top-line organic growth and
contribution from recent acquisitions.
Acquisitions made in CY16 (ECN,
Cactus, Junkee) have been
successfully integrated with full run-
rate and synergies expected to be
achieved during CY17. Realisation of
ECN synergies is ahead of
management’s schedule. InLink has
seen revenue growth of over 50%
from CY15.
oOh!’s larger divisions grew strongly,
with Road up 12.3% and Retail up
10.2%. Road will benefit further in
CY17 from a capex program around
digital conversions that was back-
ended to 2H16.
NZ revenues rose by 75.2%, driven
by a revamp of oOh!’s Retail
strategy. The NZ market has similarly
attractive market dynamics to its AU
counterpart.
The market outlook is positive, with
oOh! expecting the outdoor market to
grow in CY17 despite increased
competition from both traditional and
new media. Note that no CY17
guidance commentary was provided
due to the current status of the
proposed scheme of arrangement
with APN Outdoor.
Cashflow was solid, with 94% cash
conversion to EBITDA for the year
(un-geared, pre-tax op CF/EBITDA).
Management did note that the
receivables build-up at 31 December
is part seasonal and will reverse in
the current quarter, resulting in a
better cashflow outcome in 1H17.
Revenue growth in Fly was 2.8%,
impacted by the loss of the T2
Sydney contract. Management is
confident that contract wins in
Melbourne (T4) and Brisbane (Virgin
Domestic), plus the Cairns Airport
extension, will provide an offset and
that this division will see continued
growth.
Opex rose 33.5% to $71.4m for the
year, although half the uplift was
attributed to growth initiatives for the
year including acquisitions. The
remaining drivers were increased
investment in capabilities and
people. Opex expenditure growth
moderated in 2H16 relative to 2H15,
settling at ~5%.
oOh! incurred one-off non-
operating items of $3.3m ($2.7m
post-tax) related to acquisition costs,
due diligence costs related to the
proposed merger with APN Outdoor
and insurance proceeds relating to
claims from prior periods.
Capex increased by 39.0% to $39m,
driven by oOh!’s continued
digitisation program and further
investments in systems and
infrastructure. These initiatives are
expected to drive future growth.
Capex will remain elevated in CY17.
D&A rose 24.3% to $27.7m. D&A will
increase over the next couple of
years as oOh! continues to invest in
its screen assets, systems and
capabilities.
Adjusted NPAT of $34.4m was up
21.4% YoY, but was below our pre-
result estimate of $37.9m due to
higher depreciation expense.
Revenue growth in Place of
196.4% to $28.9m was boosted by
a full-year of InLink (acquired
December 2015) and a partial
contribution from ECN (acquired
November 2016).
oOh! continued its digital rollout in
CY16, adding 29 large format digital
road signs including regional
expansion (total: 54), 39 EVOKE
large format digital retail signs (total:
72), 25 Fly large format digital Fly
screens (total: 51) and over 200
small format retail screens. oOh!
operates over 8,000 digital screens,
up from 5,000+ in CY15.
Management continues to see
upside from the digitisation of assets.
Digital revenues were 45.6% of total
revenues, up from 31.9% in CY15
and 23.0% in CY14. oOh! had
previously been targeting a target of
45-50%, and it is likely that this
number will continue to trend
upwards.
oOh! has an attractive revenue
maturity profile, with over 70% of
revenue contracts maturing post
CY19 (and 35.2% of revenues
maturing post CY21).
The final dividend of 10cps
translated to a fully-franked full year
dividend of 14.0cps, up 47.4% on
pcp.
oOh!’s net debt/EBITDA ratio of
1.6x at 31 December is consistent
with the last couple of years, and is
well within oOh!’s banking
covenants. Management noted that it
is comfortable to operate within this
range while the company remains in
a growth phase.
Macquarie Wealth Management Media sector
9 March 2017 24
There was no material update on the
proposed merger with APN Outdoor.
The company expects the Scheme
Meeting to be held in April 2017 and
Merger implementation in May 2017,
and reiterated the board’s unanimous
support for the deal. Annualised pre-
tax cost synergies of at least $20m
are expected within two years of
implementation (ex-one off
transaction and integration costs).
Macquarie Wealth Management Media sector
9 March 2017 25
NEC
The good The not so good The interesting
Nine confirmed it is on track to deliver
EBITDA in line with pre-result
consensus estimates, and implied its
expectations sit somewhere near the
current median forecast of $175m
(Macq $176m).
The TV ad market is showing signs of
recovering. Management noted it is
currently experiencing high demand
for advertising across February and
March and has also seen some
lengthening of the market to support
programming in the April to June
period.
Nine has seen a pick-up in ratings
post the Olympics, particularly in key
demographics. It expects this to
translate into improved revenue
momentum from the June quarter, but
noted it is still cycling stronger comps
in the March quarter given it over-
monetised weaker ratings in the same
period last year. Key programming
that is currently performing above
expectations includes Married at First
Sight. Nine expects its revenue share
to improve in the second half relative
to both 2H16 and 1H17.
Nine continues to work at reducing
costs to counter difficult revenue
trends. Group costs fell 4.4% during
the half, reflecting broad cost
initiatives, reduced licence fees and
lighter programming costs against the
Olympics. Guidance was re-iterated
for TV costs to decline by around 1.5%
for the year, implying modest cost
growth in the second half.
In addition to looking internally for cost
out opportunities, Nine will continue to
try and maximise efficiencies across
the industry.
Digital EBITDA rose by 13%.
Stan is currently tracking ahead of its
business plan. Summer exceeded
expectations and January produced a
record for gross adds. Management is
increasingly confident that it has built a
“viable, competitive business”, and
noted tougher trends at Foxtel and the
soft launch of Amazon.
Nine’s TV revenue share
continued to decline, largely due
to the Olympics being on Seven
during the half. December half
share fell to 35.0%, down from
38.2% in the pcp. On a more
positive note, this does represent
a stabilisation in the business
and there is scope to reclaim lost
market share going forward.
Compounding this, the broader
FTA metro TV advertising market
declined by 4.5% during the half,
although the rate of decline was
only 2.7% if Regional and catch-
up/AVOD advertising revenues
are included..
EBITDA cash conversion was
weak again for Nine in the half at
10%. If we adjust for Warner
Bros payments and the NRL pre-
payment, this improves to 76%.
Weak cash flow has been a
thematic at Nine in recent years.
Free cash generation will remain
subdued because of payments to
Warners across FY18/19, and
improve after then.
Nine’s full year dividends are expected
to be at the lower end of previous
guidance range of 80-100% pre
significant items. As flagged at the
FY16 result, the Board intends to
spread dividend payments more evenly
over the year.
Nine took a $260m impairment charge
against Goodwill. The impairment
review was triggered by the market cap
of Nine being well below book value.
As part of the impairment testing, key
assumptions were made. These include
an expectation of low single-digit
declines in ad spend in the near-term
and a flat market medium term; Nine to
return to recent historical levels of
market share; and expenditure to
remain “broadly flat in nominal terms
over the life of the model”.
Management is not expecting a
substantial uplift in programming costs
when its new NRL deal kicks in (2018
season), although it will cycle out of the
$20m in simulcast revenues it is now
getting from FOXTEL. Against these
changes, it will get additional prime-
time games to write revenues against,
and so will get a programming cost
offset.
Nine won its dispute with the ATO,
allowing it to reverse a $10m provision.
Nine continues to invest for growth,
including a further $20m in funding for
Stan and $17m for CarAdvice in the
half.
Capex spend is expected to be at a
similar level to 1H in the second half of
the year ($18m). 1H capex included the
studio/office relocation in Perth as well
as ongoing Digital investment.
Management believes that the ThinkTV
promotion is coming along well and
translating to money coming back to TV
from other formats.
From March 1, Nine will sell TV ad
programmatically, improving inventory
utilization.
When asked, Nine’s CEO Hugh Marks
commented that he doesn’t see Print as
being a strategic asset for the Nine
business.
Macquarie Wealth Management Media sector
9 March 2017 26
SEK
The good The not so good The interesting
Management reaffirmed FY17
guidance for reported NPAT of
~$220m (at the top end of previous
guidance of ~$215-220m) (ex NRIs
and early stage losses of $25m) (Macq
$220.9m on this basis). Reported
NPAT for the half rose by 10.9% to
$113.6m.
Domestic employment delivered
another good half, evidenced by
revenue growth of 13% and EBITDA
growth of 10%. The quality of growth in
this business is increasing, as top line
momentum is sustaining despite
tapering in volume growth (+3% 1H17
vs +5% in FY16). The pick-up in yield
is increasingly coming from new
products, with ~5% of revenue growth
from prominence products and
Premium Talent Search. The remaining
growth was split across mix shift and
price rises.
Zhaopin had a strong half, growing
revenues by 23% and EBITDA by 20%
in local currency. Zhaopin continues to
take share, and grew unique hirers by
20% and average daily unique visitors
by 16% in 2Q17. It will continue to
reinvest in sales and marketing (SME
focused) and new product solutions to
drive hirer and candidate growth.
SEEK declared an interim dividend of
23.0cps (fully franked), up 10% on the
pcp. SEEK has grown its dividend by a
~23% CAGR between 1H09 and 1H17.
Cash conversion (Ungeared, pre-tax
cash flow / EBITDA) was over 100%.
However, operating cashflow was
weaker in the half due to the payment
of tax related to the profit on sale of
IDP (~$84m).
SEEK retains a strong balance sheet
with net debt/EBITDA of 0.7x at 31
December (on $234m net debt) and
EBITDA interest coverage of 27.1x.
SEEK continues to operate well within
banking covenants. Management
noted that it is well-positioned and
actively on the lookout for acquisitions
and other opportunities.
OES had a strong half, with revenue
growth of 17% and EBITDA growth of
21% driven by 16% growth in student
numbers.
Domestic employment opex growth
remained very high at 17.2%, although
with the focus increasingly on
execution and sales initiatives, this
has the potential to directly drive near
term revenue growth opportunities.
SEEK Asia was flat in local currency
terms due to macro headwinds
(particularly across its established
markets of Malaysia, HK and
Singapore), as well as reinvestment in
the product and technology of the
consolidated platform. Management
believe SEEK Asia is very well
positioned should macro conditions
across its key markets improve.
Management noted that candidate
numbers in its weaker, more
established markets remain strong,
and that its share of placements is at
least 5x that of its competitor across
its markets (and up to over 40x in
some markets).
Brazil continues to face difficult macro
headwinds (10 consecutive quarters of
GDP declines), with revenue down
15% and EBITDA down 16% (local
currency). Management remains
committed to positioning the business
for the medium term and an eventual
recovery in the cycle, and flagged
further investment in sales/marketing,
product/technology, data and artificial
intelligence.
Mexico EBITDA fell by 27% (local
currency), despite 14% revenue
growth, due to heavy reinvestment in
in product/technology and regional
expansion. The focus remains on
continued penetration of the large and
growing SME market.
Learning revenue and EBITDA were
down sharply following the decision to
cease VET operations. Learning will
again deliver negative EBITDA in
2H17. The business has realigned its
cost base to position the new
education business for launch next
year. Management noted that the
business has “worked its way through
the most challenging operational
issues and associated financial
impacts.”
There was no material update on the
proposed privatisation of Zhaopin for
US$18/ADS by a consortium comprising
SEEK, Hillhouse Capital and
FountainVest Partners. If the proposed
transaction is completed, it is expected
that SEEK will retain a similar
controlling interest.
Early stage losses were $10.9m for
the half (vs. $9.0m in 1H16). Key
components include Jora, Learning and
overseas education. SEEK has guided
to early stage losses of ~$25m for the
year. SEEK continues to invest and
expand its early stage portfolio across
employment, international and
education, with management confident
that these businesses will contribute to
growth in the long-term.
Group capex rose by 17% to $35.2m,
with international representing the
majority of the growth (15%). Capex will
increase in FY17 due to reinvestment in
product and tech across all businesses.
Management commented that there
remains scope for price increases for its
Premium Talent Search product.
SEEK has penetrated the top tier of
higher value recruiters with this product,
and is now also shifting its focus to
smaller, lower value customers.
SEEK highlighted its effort for global
collaboration across its businesses, as
it increasingly looks to leverage A/NZ’s
capabilities across strategy, product,
tech and data analytics.
Management flagged that share-based
compensation expense will normalise
in 2H at ~$8-9m, after falling to ~$4m in
the first half due to the non-vesting of
incentive plans in international
businesses (mainly Brazil).
Net interest expense was low for the
half (down 62.3% to $5.2m) due to the
presence of the IDP proceeds as well
as strong cash flow, and will normalise
next half.
Net profit will be skewed to the first
half, due to the abnormally low share-
based compensation expense, timing of
tax payments and abnormally low net
interest expense.
Macquarie Wealth Management Media sector
9 March 2017 27
Capitalised costs rose due to
increased investment across the
platform.
Macquarie Wealth Management Media sector
9 March 2017 28
SWM
The Good... The bad... The interesting
Seven maintained leadership in TV for
the 21st consecutive half. 2H16 metro
revenue share was strong at 40.8%,
boosted by the Rio Olympics falling in the
period. (In the absence of The Olympics it is
likely Seven’s revenue share would have
declined relative to the 38.5% achieved in
1H16).
Seven was more upbeat on the TV ad
market outlook than in other recent
briefings, noting that it is now seeing
“growth in February and March for the first
time since 2014” and “the market beginning
to trade longer”. On the earnings call, Seven
attributed this to better promotion of the
industry under ThinkTV, with positive
responses from the FMCG segments as
well as Banking, Insurance and Telco.
Program sales and 3rd party production
revenues grew by 17% in 1H17 to $50.2m,
continuing a trends after very strong growth
in FY16. Strong second half growth is
expected, with revenue growth to exceed
25%. Last year, this category represented
close to 20% of TV EBIT.
For the full year, Seven improved its
Group cost growth guidance (excluding
Olympics/3rd party commissions) to
incorporate declines vs FY16 compared to
previous guidance that these would be flat
year on year. This is on an underlying basis,
and excludes costs inherited via the
acquisition of The Sunday Times and
PerthNow.
Seven continues to work with other TV
networks to rationalise costs given the
weaker TV ad market outlook. This is
currently manifesting in initiatives such as
the sharing of News helicopters and
ongoing focus to target efficiencies around
areas such as captioning services and
transmission.
While the December half result was
disappointing, the Magazines segment will
benefit from a ~$18m reduction in costs
in the 2H on the back of restructuring efforts
undertaken to date. As a result,
management expects the Magazines EBIT
contribution to improve “materially” in 2H17.
The acquisition of The Sunday Times
and Perth Now looks a positive one for
Seven, with an underlying EBIT contribution
north of $6m standalone pro-forma in the
half and further synergies to come.
The TV ad market deteriorated further in
the face of increased competition from
global digital players. Metro FTA TV
advertising fell by 4.5% in the half, although
the decline was more moderate at 2.7%
after allowing for revenues associated with
AVOD, regional and other digital platforms.
While guidance was re-iterated at ~20%
declines in EBIT for the year, we note that
this represents a deterioration in the
underlying profit outlook in the context of
exiting the loss-making Presto JV and also
given the earnings accretion that will come
from eight months of owning The Sunday
Times and PerthNow.
Group cost growth was high at 10.1%, but
excluding the Olympics and 3rd party
commissions Group opex fell by 3.8% in
the half.
Pacific Magazines earnings fell 82.8% for
the half, as the segment suffered from
deteriorating industry trends and a lagged
impact of efforts to reposition its brands
toward digital products. As noted, a benefit
will flow from these measures in 2H.
Earnings at The West declined 38.0% for
the half as the category remains challenged
by structural factors and a softening WA
economy.
Cash flow conversion in the half was a very
healthy 103%, however we had expected a
larger unlock of working capital around
the Olympics – which had been partly paid
for in previous periods.
Gearing ratios have risen given the
decline in earnings. Net debt declined by
$34.8m to $681.2m, but net debt/EBITDA
rose to 2.2x, up from 2.0x 6 months earlier.
Management noted that based on
seasonal timing of cash flows related to
content production, net debt will be
higher at 30 June. On our revised
estimates, ND/EBITDA at year end will be
~2.4x. Management remain committed to
working to reduce gearing going forward.
Seven cut its interim dividend from 4cps
to 2cps. While its payout ratio has typically
ranged close to 60%, we now expect a
payout ratio closer to 50%, given comments
above on gearing.
Six months ago, Seven said it was in
“advanced stages” on three international
production company opportunities, which
would help it further transform its revenue
mix away from traditional linear TV
advertising. It has since announced the
acquisition of Slim in the UK, and flagged
further expansion via acquisitions in
production assets is still planned.
Digital revenues (derived from 100% SWM-
owned businesses) are guided to grow by
over 150% for the year. Over half the
revenue base is represented by mobile,
video and native-focused advertising.
The Yahoo7 investment was written
down by $75.5m. This was attributed to a
deterioration in general market conditions
brought on by the accelerating shift from
premium display to programmatic
advertising; the loss of a NZ service contract
during the half; and market uncertainty due
to the ongoing delay of the potential
acquisition of Yahoo Inc by Verizon.
SWM noted that Yahoo Inc has announced
that the proposed Verizon transaction has
been delayed until the June quarter of 2017.
Capex guidance for FY17 was $30-40m
(Macq $35m), which is within SWM’s normal
range and will be used to fund strategic
initiatives.
SWM noted that it is seeking further licence
fee cuts in this year’s Federal budget in
May.
SWM noted that it expects its suite of early
stage businesses, which are currently loss-
making to reach profitability in the medium-
term.
Macquarie Wealth Management Media sector
9 March 2017 29
SXL
The good The not so good The interesting
Group revenues rose by 9.2% to
$351.8m, driven by improved
advertising across both metro and
regional assets. This was offset by
high cost growth of 12.5%, resulting
in EBITDA growth of 1.3% to
$92.6m.
Metro radio delivered a decent half,
growing revenues by 7.1% vs. the
market at +1.5% (SXL revenue
excludes a -$4.4m one-off impact
from the renewed ATN contract).
Local sales were slightly down, while
national sales rose 11.4%, driven by
yield improvement. Southern Cross’
solid performance contrasts to
softness in APN’s radio business in
the December half (refer APN News
& Media – radio signal strengthening,
23 February 2017). The first radio
ratings survey is expected on March
14.
Metro radio EBITDA growth of 4.0%
was premised on strong top-line
trends, offset by 3.3% cost growth
from investments in talent, content
and revenue-related costs. Southern
Cross will continue to invest in
content, identifying the 2Day Sydney
breakfast show and National early-
drive show as key areas of focus.
Regional revenue growth of 15.0%
was driven by a 16.9% increase in
advertising revenues, which resulted
from the change in affiliation to Nine.
This was outweighed by cost growth
of 24.5% (or 23.4% ex NRIs),
resulting in an EBITDA decline of
3.2% (or 1.1% ex NRIs).
Regional TV advertising revenues
rose 28.7%, including 32.7% growth
for national sales and 24.2% growth
for local sales. As expected,
Southern Cross’ share in the three
markets it retransmits Nine’s signal
has moved higher since the
changeover in mid-2016, and its
power ratio in those markets
improved from 0.95x to 1.03x YoY.
The company believes that improved
programming from Nine (noting that
CY17 ratings have been stronger vs.
pcp) and the rollout of regional news
services will drive growth.
Southern Cross’ outlook for the ad
market has deteriorated since the
last result. Guidance commentary
noted that ad markets remain
“relatively short with low growth
forecast”, with management noting
on the call that they expect “low
single digit declines” for the
immediate future.
Guidance also softened, with the
company guiding to FY17 EBITDA at
the lower end of previous guidance
of $177-183m. The update to
guidance appears to be driven by
Southern Cross' softer view of the ad
market outlook. Guidance (if taken at
the lower end of $177m) implies
EBITDA growth of 5.5% for the year
and 10.6% for 2H (in line with our
expectations). Growth in 2H will be
driven by continued top-line growth
(particularly from regional TV).
Regional radio revenue growth of
2.8% was below the mid-single digit
growth rates of prior halves. This was
driven by softness in local sales
(~60% of regional radio revenues),
which grew by only 1.2% during the
half. This was attributed to the impact
of the affiliation change, which
shifted focus away from local sales
as the company retrained its
salesforce to sell Nine content. Local
sales should improve in 2H. National
sales were robust, up 7.5%, driven
by improved sales capabilities.
Group cost growth will be driven by
further investment in technology,
content and marketing, which the
company will look to partly offset
through back-office efficiencies.
EBITDA cash conversion in the
traditionally weaker December was
82%, primarily due to the timing of
annual licence fee payments. This is
nonetheless an improvement on the
74% conversion in pcp.
Cash fell by ~$47m during the half,
driven by debt repayment of $40m
and the acquisition of Authentic
Entertainment. Drawn debt sits at
$395m with a $100m undrawn facility
(that matures in January 2019).
Corporate revenue was generally
flat (ex a $2.4m gain on disposal in
1H16). The EBITDA loss declined by
$2.1m to $1.0m, benefiting from
lower licence fee cuts held over from
FY16, which was offset by higher
employee costs.
Net debt/EBITDA was 1.89x at 31
December 2016, unchanged from six
months ago and below the 2.60x
from 12 months ago. Net debt ticked
up slightly during the half, by $7.4m
to $347.8m, driven by the acquisition
of Authentic Entertainment. Southern
Cross is likely to continue to divest
non-core assets and reinvest the
proceeds in areas including content,
data and technology.
SXL is in the process of selling 45
transmission towers to Axicom
which will generate $12.6m
proceeds. Axicom will incur future
capex related to maintenance of the
towers. Completion is expected in
April subject to regulatory approval.
The incremental EBITDA loss will be
$1.5 to $2.0m, likely from FY18.
SXL enhanced its digital
capabilities with the acquisition of
Authentic Entertainment and the new
partnership with Vevo as its
exclusive Australian sales
representative. Vevo is a large
premium video platform, and the
acquisition significantly expands
SXL’s digital video inventory, which
is an increasing area of focus for
advertisers. Authentic
Entertainment is a digital and radio
content business, and Southern
Cross has brought the acquired
content creation capabilities in-
house.
Southern Cross reiterated its
advocacy for the need for media
reform legislation. It believes that
the industry is in urgent need of
reform, noting that current laws are
impeding regional media companies
from competing with digital and
global competition.
The tax rate in FY17 will be lower
than prior years (~28%) due to the
carry-forward of capital losses from
assets disposed of last year. The tax
rate will return to 30-31% from FY18.
Macquarie Wealth Management Media sector
9 March 2017 30
Source: Company data, Macquarie Research, March 2017
APN News and Media Limited (APN) $2.67Interim 1H16 2H16 1H17e 2H17e Full year CY16 CY17e CY18e CY19e
Sales revenue $m 129.1 169.5 221.4 268.8 Sales revenue $m 298.6 490.2 516.2 537.0
Other revenue $m 0.4 7.2 0.0 0.0 Other revenue $m 7.6 0.0 0.0 0.0
Opex $m 98.9 125.7 168.4 188.9 Opex $m 224.5 357.3 373.1 385.9
EBITDA (ex Associates) $m 30.7 51.0 53.0 80.0 EBITDA (ex Associates) $m 81.7 132.9 143.2 151.1
Depreciation $m 1.6 5.8 10.0 10.0 Depreciation $m 7.4 20.0 24.5 29.1
Amortisation $m 0.8 0.3 1.0 1.0 Amortisation $m 1.1 2.0 2.5 2.9
D&A $m 2.4 6.2 11.0 11.0 D&A $m 8.5 22.0 27.0 32.0
EBIT $m 28.3 44.8 42.0 69.0 EBIT $m 73.1 110.9 116.2 119.1
Associates $m 5.2 4.1 1.0 1.5 Associates $m 9.3 2.5 2.5 2.5
EBIT incl. assoc $m 33.5 48.9 43.0 70.5 EBIT incl. assoc $m 82.4 113.4 118.7 121.6
Net Interest Expense $m 12.1 5.5 4.0 3.8 Net Interest Expense $m 17.6 7.8 6.9 5.4
Pre-Tax Profit $m 21.4 43.3 39.0 66.6 Pre-Tax Profit $m 64.8 105.6 111.7 116.2
Tax Expense $m 8.0 8.6 10.8 18.3 Tax Expense $m 16.6 29.1 30.8 32.2
Net Profit $m 13.4 34.7 28.2 48.4 Net Profit $m 48.2 76.6 80.9 84.0
Minority Interests $m 3.3 3.3 3.3 3.3 Minority Interests $m 6.6 6.7 6.8 6.9
Adjusted Earnings $m 10.2 31.5 24.8 45.0 Adjusted Earnings $m 41.6 69.9 74.2 77.2
NRIs (net of tax) $m -267.1 219.4 0.0 0.0 NRIs (net of tax) $m -47.6 0.0 0.0 0.0
Reported Earnings $m -256.9 250.9 24.8 45.0 Reported Earnings $m -6.0 69.9 74.2 77.2
Amortisation $m 0.8 0.3 1.0 1.0 Amortisation $m 1.1 2.0 2.5 2.9
Adjusted Earnings (ex amortisation) $m 10.9 31.8 25.8 46.0 Adjusted Earnings (ex amortisation) $m 42.7 71.9 76.6 80.1
EPS (reported) cps -160.3 105.5 8.1 14.7 EPS (reported) cps -54.8 22.7 24.1 25.1
EPS (adj) cps 6.3 13.2 8.1 14.7 EPS (adj) cps 19.6 22.7 24.1 25.1
EPS (adj ex amortisation) cps 6.8 13.4 8.4 15.0 EPS (adj ex amortisation) cps 20.2 23.4 24.9 26.0
PER (reported) x -0.8 1.3 16.5 9.1 PER (reported) x -4.9 11.7 11.1 10.6
PER (adj) x 21.1 10.1 16.5 9.1 PER (adj) x 13.6 11.7 11.1 10.6
PER (adj ex amortisation) x 39.1 20.0 31.8 17.8 PER (adj ex amortisation) x 13.2 11.4 10.7 10.3
EPS grow th % (61.4%) (55.0%) 27.5% 10.7% EPS grow th % (57.3%) 16.2% 6.1% 4.1%
DPS cps - 4.0 3.2 5.9 DPS cps 4.0 9.1 9.6 10.0
Dividend yield % -% 1.5% 1.2% 2.2% Dividend yield % 1.5% 3.4% 3.6% 3.8%
Payout ratio (adj) % -% 30.2% 40.0% 40.0% Payout ratio (adj) % 20.4% 40.0% 40.0% 40.0%
FCF/sh cps 5.4 5.8 2.5 8.4 FCF/sh cps 11.2 10.9 17.2 19.8
FCFE yield (annualised) % 4.0% 4.3% 1.8% 6.3% FCFE yield (annualised) % 4.2% 4.1% 6.4% 7.4%
EBITDA margin % 23.7% 30.1% 23.9% 29.7% EBITDA margin % 27.3% 27.1% 27.7% 28.1%
EBIT margin % 21.9% 26.4% 19.0% 25.7% EBIT margin % 24.5% 22.6% 22.5% 22.2%
EBITDA grow th % (54.1%) (41.8%) 72.7% 56.8% EBITDA grow th % (47.1%) 62.8% 7.7% 5.6%
EBIT grow th % (41.5%) (36.6%) 48.3% 53.9% EBIT grow th % (38.5%) 51.7% 4.7% 2.5%
Profit and Loss Ratios CY16 CY17e CY18e CY19e Cashflow Analysis CY16 CY17e CY18e CY19e
Other revenue grow th % (64.5%) 60.1% 5.3% 4.0% EBITDA $m 115.1 132.9 143.2 151.1
EBITDA grow th % (47.1%) 62.8% 7.7% 5.6% Ch in Working Capital $m (6.6) 0.9 (0.1) (0.1)
% of EBITDA in 1H % 39.9% 40.1% 40.2% 40.3% Net Interest Paid $m 19.7 7.8 6.9 5.4
Effective Tax Rate % 0.3 0.3 0.3 0.3 Tax Paid $m 23.3 29.1 30.8 32.2
EV/EBIT x 5.9 8.4 7.8 7.4 Other $m 5.2 2.5 2.5 2.5
EV/EBITDA x 8.3 7.2 6.5 5.9 Operating Cashflow $m 70.7 99.5 107.8 115.9
EV/Sales x 2.2 1.9 1.8 1.7 Acquisitions $m 270.2 - - -
Capex $m 14.9 66.0 55.0 55.0
Balance Sheet Ratios CY16 CY17e CY18e CY19e Asset Sales $m 37.8 - - -
Other $m (12.4) - - -
ROE % 0.1% 8.9% 8.9% 8.8% Investing Cashflow $m (259.6) (66.0) (55.0) (55.0)
ROFE % 8.9% 12.7% 12.7% 12.4% Dividends Paid $m - (19.5) (28.6) (30.1)
ROA % 6.3% 9.2% 9.4% 9.5% Equity movements $m 442.7 - - -
Net Debt $m 146.9 132.9 108.7 77.9 Debt movements $m (311.9) (14.0) (24.2) (30.9)
Net Debt/Equity x 0.3 0.2 0.1 0.1 Other $m 89.9 - - -
Net Debt/EBITDA x 1.8 1.0 0.8 0.5 Financing Cashflow $m 220.7 (33.5) (52.8) (60.9)
Interest Cover (EBIT) x 4.1 14.2 16.8 22.0
EFPOWA m 199.0 307.5 307.5 307.5 Net Cashflow $m 31.8 - - -
Balance Sheet CY16 CY17e CY18e CY19e
Cash $m 20.2 20.2 20.2 20.2
Receivables $m 86.4 107.5 113.2 117.9
Inventories $m 2.2 - - -
Investments $m 12.3 12.3 12.3 12.3
PP&E $m 93.8 139.8 170.3 196.2
Intangibles $m 882.8 880.8 878.4 875.5
Other Assets $m 47.2 47.2 47.2 47.2
Total Assets $m 1,144.9 1,207.8 1,241.5 1,269.2
Payables $m 92.2 113.6 119.4 124.2
Short Term Debt $m - - - -
Long Term Debt $m 161.3 147.3 123.1 92.3
Snapshot Current Provisions $m 37.1 37.1 37.1 37.1
Current price $ 2.67 Other Liabilities $m 17.8 22.9 29.4 36.0
EFPOWA # 307.5 Total Liabilities $m 308.4 320.9 309.0 289.6
Market cap $m 821.0 Shareholders Funds $m 800.6 857.7 910.0 964.0
Net debt $m 146.9 Minority Interests $m 35.9 29.2 22.5 15.6
EV $m 967.9 Shaereholder Equity $m 836.5 886.9 932.5 979.6
Macquarie Wealth Management Media sector
9 March 2017 31
Source: Company data, Macquarie Research, March 2017
Fairfax Media (FXJ) $0.95Interim 1H17 2H17e 1H18e 2H18e Full year FY16 FY17e FY18e FY19e
Revenue $m 903.5 854.3 901.0 848.0 Revenue $m 1,832.1 1,757.7 1,749.0 1,743.0
Opex $m 758.6 729.6 756.2 720.1 Opex $m 1,548.8 1,488.2 1,476.3 1,468.3
EBITDA $m 144.9 124.7 144.8 127.8 EBITDA $m 283.3 269.6 272.7 274.8
Depreciation $m 8.9 14.0 12.6 11.9 Depreciation $m 45.6 22.9 24.5 24.4
Amortisation $m 9.4 10.1 9.4 10.1 Amortisation $m 24.5 19.5 19.5 19.5
D&A $m 18.3 24.1 22.0 22.0 D&A $m 70.1 42.4 44.0 43.9
EBIT $m 126.6 100.6 122.9 105.8 EBIT $m 213.2 227.2 228.7 230.9
Associates $m 0.0 0.0 0.0 0.0 Associates $m 0.0 0.0 0.0 0.0
EBIT incl. assoc $m 126.6 100.6 122.9 105.8 EBIT incl. assoc $m 213.2 227.2 228.7 230.9
Net Interest Expense $m 4.6 5.6 7.1 6.7 Net Interest Expense $m 11.1 10.2 13.8 11.8
Pre-Tax Profit $m 122.0 95.0 115.7 99.2 Pre-Tax Profit $m 202.1 217.0 214.9 219.0
Tax Expense $m 31.9 27.9 34.3 26.9 Tax Expense $m 59.2 59.8 61.2 62.3
Net Profit $m 90.1 67.1 81.4 72.3 Net Profit $m 142.9 157.2 153.7 156.7
Minority Interests $m 5.4 5.5 5.4 5.6 Minority Interests $m 10.4 11.0 11.0 11.1
Adjusted Earnings $m 84.7 61.6 76.0 66.6 Adjusted Earnings $m 132.5 146.3 142.7 145.6
NRIs (net of tax) $m -1.0 0.0 0.0 0.0 NRIs (net of tax) $m -1,026.1 -1.0 0.0 0.0
Reported Earnings $m 83.7 61.6 76.0 66.6 Reported Earnings $m -893.6 145.3 142.7 145.6
EPS (Adj/dil) cps 3.7 2.7 3.3 2.9 EPS (Adj/dil) cps 5.7 6.4 6.2 6.3
EPS Grow th % 8.0% 16.9% (10.2%) 8.2% EPS Grow th % (6.7%) 11.6% (2.5%) 2.1%
DPS cps 2.0 2.0 2.0 2.0 DPS cps 4.0 4.0 4.0 4.0
Dividend yield % 2.1% 2.1% 2.1% 2.1% Dividend yield % 4.2% 4.2% 4.2% 4.2%
Payout ratio (adj) % 54.3% 74.7% 60.5% 69.0% Payout ratio (adj) % 70.2% 62.9% 64.5% 63.2%
FCF/sh cps 1.3 1.0 2.5 2.8 FCF/sh cps 1.4 2.3 5.4 5.5
FCFE yield (annualised) % 2.7% 2.2% 5.3% 6.0% FCFE yield (annualised) % 1.4% 2.4% 5.7% 5.8%
EBITDA margin % 16.0% 14.6% 16.1% 15.1% EBITDA margin % 15.5% 15.3% 15.6% 15.8%
EBIT margin % 14.0% 11.8% 13.6% 12.5% EBIT margin % 11.6% 12.9% 13.1% 13.2%
EBITDA grow th % (10.1%) 2.0% (0.0%) 2.5% EBITDA grow th % (2.1%) (4.9%) 1.1% 0.8%
EBIT Grow th % 0.2% 15.9% (3.0%) 5.2% EBIT Grow th % (5.0%) 6.6% 0.6% 1.0%
Profit and Loss Ratios FY16 FY17e FY18e FY19e Cashflow Analysis FY16 FY17e FY18e FY19e
Revenue grow th % (1.2%) (4.1%) (0.5%) (0.3%) EBITDA $m 283.3 269.6 272.7 274.8
% of EBITDA in 1H % 56.9% 53.7% 53.1% 52.7% Ch in Working Capital $m 37.9 (1.3) (0.9) (0.6)
Effective Tax Rate % 29.7% 28.0% 29.0% 29.0% Net Interest Paid $m 13.9 11.9 13.8 11.8
PER (adj) x 16.7 14.9 15.3 15.0 Tax Paid $m 51.0 47.8 61.2 62.3
EV/EBIT x -2.5 10.5 10.1 9.8 Other $m (52.9) (63.1) - -
EV/EBITDA x 8.0 8.6 8.4 8.2 Operating Cashflow $m 127.7 148.0 198.5 201.2
EV/Sales x 1.2 1.3 1.3 1.3 Acquisitions $m (46.1) (7.1) - -
Capex $m (95.0) (95.0) (75.0) (75.0)
Balance Sheet Ratios FY16 FY17e FY18e FY19e Asset Sales $m 68.5 10.7 - -
Other $m (31.6) (0.3) - -
ROE % 8.5% 13.9% 13.0% 12.7% Investing Cashflow $m (104.1) (91.7) (75.0) (75.0)
ROFE % 18.8% 18.6% 18.4% 18.3% Dividends Paid $m (93.5) (92.0) (92.0) (92.0)
ROA % 10.5% 14.5% 14.4% 14.4% Equity movements $m (73.9) (1.7) - -
Net Debt (pro-forma) $m 88.7 145.5 113.9 79.7 Debt movements $m (109.9) 89.7 (31.5) (34.2)
Net Debt/Equity x 0.1 0.1 0.1 0.1 Other $m (9.2) (15.2) - -
Net Debt/EBITDA x 0.3 0.5 0.4 0.3 Financing Cashflow $m (286.4) (19.2) (123.5) (126.2)
Interest Cover (EBIT) x -80.9 21.8 16.6 19.5
EFPOWA m 2383.4 2299.5 2299.5 2299.5 Net Cashflow $m (262.9) 37.1 - (0.0)
Balance Sheet FY16 FY17e FY18e FY19e
Cash $m 81.1 118.4 118.4 118.4
Receivables $m 342.6 285.8 283.7 282.4
Inventories $m 29.6 28.1 27.9 27.7
Investments $m - - - -
PP&E $m 150.3 178.0 203.6 229.3
Intangibles $m 754.3 771.3 771.3 771.3
Other Assets $m 286.2 315.5 309.9 304.2
Total Assets $m 1,644.1 1,697.0 1,714.7 1,733.3
Payables $m 250.8 191.9 190.5 189.6
Short Term Debt $m - 96.6 96.6 96.6
Long Term Debt $m 179.3 176.7 145.2 111.0
Snapshot Current Provisions $m 164.9 156.3 156.3 156.3
Current price $ 0.95 Other Liabilities $m 15.1 5.9 5.9 5.9
EFPOWA # 2,299.5 Total Liabilities $m 610.1 627.5 594.5 559.4
Market cap $m 2,184.5 Shareholders Funds $m 910.9 937.9 988.6 1,042.3
Net debt $m 115.9 Minority Interests $m 123.2 131.7 131.7 131.7
EV $m 2,300.4 Shaereholder Equity $m 1,034.1 1,069.6 1,120.3 1,173.9
Macquarie Wealth Management Media sector
9 March 2017 32
Source: Company data, Macquarie Research, March 2017
Carsales.com (CAR) $11.20Interim 1H17 2H17e 1H18e 2H18e Full year FY16 FY17e FY18e FY19e
Revenue $m 178.6 187.8 189.8 200.7 Revenue $m 344.0 366.4 390.6 417.3
Opex $m 95.3 93.8 101.3 101.4 Opex $m 173.7 189.1 202.7 214.8
EBITDA $m 83.2 94.1 88.5 99.4 EBITDA $m 170.3 177.3 187.9 202.5
D&A $m 4.6 4.5 4.4 4.3 D&A $m 7.5 9.1 8.7 8.2
EBIT $m 78.7 89.5 84.1 95.1 EBIT $m 162.8 168.2 179.2 194.3
Associates $m 3.7 4.0 4.3 5.2 Associates $m 5.2 7.6 9.5 12.1
EBIT incl. assoc $m 82.3 93.5 88.4 100.3 EBIT incl. assoc $m 168.0 175.8 188.7 206.4
Net Interest Expense $m 3.7 3.7 3.5 3.2 Net Interest Expense $m 8.4 7.4 6.7 5.6
Pre-Tax Profit $m 78.6 89.8 85.0 97.1 Pre-Tax Profit $m 159.6 168.4 182.0 200.8
Tax Expense $m 23.8 26.5 25.1 28.6 Tax Expense $m 47.5 50.3 53.7 59.2
Net Profit $m 54.8 63.3 59.9 68.4 Net Profit $m 112.2 118.1 128.3 141.6
Minority Interests $m 1.5 1.4 1.7 1.9 Minority Interests $m 4.8 3.0 3.6 4.4
Adjusted Earnings $m 53.3 61.9 58.2 66.5 Adjusted Earnings $m 107.4 115.1 124.7 137.1
NRIs (net of tax) $m -6.1 0.0 0.0 0.0 NRIs (net of tax) $m 1.9 -6.1 0.0 0.0
Reported Earnings $m 47.2 61.9 58.2 66.5 Reported Earnings $m 109.2 109.1 124.7 137.1
EPS (Adj/dil) cps 22.1 25.7 24.1 27.6 EPS (Adj/dil) cps 44.6 47.8 51.7 56.9
EPS Grow th % 5.5% 8.4% 9.1% 7.5% EPS Grow th % 6.9% 7.1% 8.3% 10.0%
DPS cps 18.7 21.0 19.8 22.6 DPS cps 37.3 39.7 42.4 46.6
Dividend yield % 1.7% 1.9% 1.8% 2.0% Dividend yield % 3.4% 3.6% 3.8% 4.2%
Payout ratio (adj) % 84.6% 82.0% 82.0% 82.0% Payout ratio (adj) % 83.6% 83.2% 82.0% 82.0%
FCFE cps 19.8 26.3 23.5 29.0 FCFE cps 46.2 46.1 52.5 56.9
FCFE yield (annualised) % 3.6% 4.7% 4.2% 5.2% FCFE yield (annualised) % 4.2% 4.1% 4.7% 5.1%
EBITDA margin % 46.6% 50.1% 46.6% 49.5% EBITDA margin % 49.5% 48.4% 48.1% 48.5%
EBIT margin % 44.1% 47.7% 44.3% 47.4% EBIT margin % 47.3% 45.9% 45.9% 46.6%
EBITDA grow th % 2.2% 5.9% 6.4% 5.6% EBITDA grow th % 10.3% 4.1% 6.0% 7.8%
EBIT Grow th % 1.7% 4.8% 7.0% 6.2% EBIT Grow th % 8.8% 3.3% 6.6% 8.4%
Profit and Loss Ratios FY16 FY17e FY18e FY19e Cashflow Analysis FY16 FY17e FY18e FY19e
Revenue Grow th % 10.3% 6.5% 6.6% 6.8% EBITDA $m 170.3 177.3 187.9 202.5
% of EBITDA in 1H % 47.9% 44.8% 47.1% 47.1% Ch in Working Capital $m 2.2 5.2 1.0 1.0
Effective Tax Rate % 29.7% 31.1% 29.5% 29.5% Net Interest Paid $m 8.0 7.4 6.7 5.6
PER (adj) x 24.9 23.3 21.5 19.5 Tax Paid $m 43.4 46.5 51.6 56.4
EV/EBIT x 17.7 16.9 15.7 14.3 Other $m -2.1 -5.0 0.0 0.0
EV/EBITDA x 16.9 16.0 15.0 13.7 Operating Cashflow $m 114.6 113.3 128.7 139.5
EV/Sales x 8.4 7.7 7.2 6.7 Acquisitions $m 39.2 1.3 0.0 0.0
Capex $m 3.4 2.2 2.2 2.2
Balance Sheet Ratios FY16 FY17e FY18e FY19e Asset Sales $m 0.0 0.0 0.0 0.0
Other $m 4.9 19.6 0.0 0.0
ROE % 44.4% 43.8% 44.3% 45.0% Investing Cashflow $m -37.8 16.1 -2.2 -2.2
ROFE % 37.1% 40.9% 43.9% 47.9% Dividends Paid $m 89.1 91.4 98.4 107.3
ROA % 31.4% 31.2% 33.8% 36.9% Equity movements $m 2.2 0.3 0.0 0.0
Net Debt $m 198.2 159.8 131.8 101.9 Debt movements $m 12.0 -22.9 -28.0 -29.9
Net Debt/Equity x 0.8 0.6 0.4 0.3 Other $m 0.0 0.0 0.0 0.0
Net Debt/EBITDA x 0.9 0.7 0.5 0.3 Financing Cashflow $m -75.0 -114.0 -126.5 -137.3
Interest Cover (EBIT) x 20.3 22.7 28.2 37.1
EFPOWA m 240.6 241.1 241.1 241.1 Net Cashflow $m 1.9 15.4 0.0 0.0
Divisional estimates FY16 FY17e FY18e FY19e Balance Sheet FY16 FY17e FY18e FY19e
Private $m 51.1 63.1 67.5 72.3 Cash $m 28.7 44.1 44.1 44.1
Dealer $m 123.8 134.9 141.4 148.2 Receivables $m 44.7 48.4 51.7 55.2
Corporate display $m 65.8 69.0 72.5 76.1 Inventories $m 1.1 0.7 0.7 0.7
Data & research $m 35.9 41.4 43.9 46.5 Investments $m 267.0 232.9 232.9 232.9
Stratton Finance $m 63.0 50.4 57.0 65.2 PP&E $m 6.6 7.8 10.1 12.3
International $m 4.4 7.5 8.3 9.1 Intangibles $m 191.6 189.1 180.4 172.2
Other Assets $m 6.1 8.8 8.7 8.4
Total revenue $m 344.0 366.4 390.6 417.3 Total Assets $m 545.8 531.8 528.5 525.8
Payables $m 36.2 34.3 36.6 39.1
Short Term Debt $m 1.8 2.0 2.0 2.0
Snapshot Current Long Term Debt $m 225.1 201.9 173.9 143.9
Current price $ 11.11 Provisions $m 7.3 7.7 7.7 7.7
EFPOWA # 241.0 Other Liabilities $m 15.0 12.0 12.0 12.0
Market cap $m 2,677.3 Total Liabilities $m 285.4 257.9 232.2 204.8
Net debt $m 178.1 Shareholders Funds $m 256.2 270.1 292.5 317.2
EV $m 2,855.4 Minority Interests $m 4.2 3.8 3.8 3.8
Shaereholder Equity $m 260.4 273.9 296.3 321.0
Macquarie Wealth Management Media sector
9 March 2017 33
Source: Company data, Macquarie Research, March 2017
Nine Entertainment Co (NEC) $1.00Interim 1H16 2H16 1H17 2H17e Full year FY16 FY17e FY18e FY19e
Revenue $m 691.5 590.9 656.5 593.3 Revenue $m 1,282.4 1,249.9 1,267.3 1,268.5
Opex $m 565.0 517.7 537.1 538.7 Opex $m 1,082.7 1,075.7 1,086.5 1,096.2
EBITDA $m 126.5 73.2 119.5 54.7 EBITDA $m 199.6 174.2 180.8 172.3
Depreciation $m 13.1 12.7 13.7 10.5 Depreciation $m 25.8 24.1 24.4 24.8
Amortisation $m 2.4 4.1 4.7 3.6 Amortisation $m 6.5 8.3 8.4 8.5
D&A $m 15.6 16.7 18.3 14.1 D&A $m 32.3 32.4 32.8 33.2
EBIT $m 110.9 56.4 101.1 40.6 EBIT $m 167.3 141.8 148.0 139.0
Associates $m 1.3 0.8 0.3 1.0 Associates $m 2.1 2.2 2.3 2.4
EBIT incl. assoc $m 112.2 57.3 101.4 41.6 EBIT incl. assoc $m 169.5 144.0 150.3 141.5
Net Interest Expense $m 4.8 0.6 3.1 5.8 Net Interest Expense $m 5.4 8.9 8.1 8.6
Pre-Tax Profit $m 107.4 56.7 98.3 35.8 Pre-Tax Profit $m 164.1 135.1 142.2 132.9
Tax Expense $m 25.9 19.6 23.3 15.2 Tax Expense $m 45.5 38.5 39.2 36.5
Net Profit $m 81.5 37.1 75.0 20.5 Net Profit $m 118.6 96.6 103.1 96.4
Minority Interests $m 0.0 0.0 0.0 0.0 Minority Interests $m 0.0 0.0 0.0 0.0
Adjusted Earnings $m 81.5 37.1 75.0 20.5 Adjusted Earnings $m 118.6 96.6 103.1 96.4
NRIs (net of tax) $m 239.4 144.4 -311.9 0.0 NRIs (net of tax) $m -85.3 -311.9 -9.0 0.0
Reported Earnings $m 320.8 181.5 -236.9 20.5 Reported Earnings $m 33.2 -215.3 94.1 96.4
EPS (Adj/dil) cps 9.1 4.2 8.6 2.4 EPS (Adj/dil) cps 13.4 11.0 11.8 11.1
EPS Grow th % (3.2%) (24.0%) (5.8%) (44.3%) EPS Grow th % (10.9%) (18.0%) 7.9% (6.5%)
DPS cps 8.0 4.0 4.5 4.3 DPS cps 12.0 8.8 9.5 8.8
Dividend yield % 8.0% 4.0% 4.5% 4.3% Dividend yield % 12.0% 8.8% 9.5% 8.8%
Payout ratio (adj) % 87.6% 94.5% 52.3% 181.2% Payout ratio (adj) % 89.7% 80.0% 80.0% 80.0%
FCF/sh cps 3.9 -4.9 -5.9 -1.2 FCF/sh cps -0.9 -7.1 5.7 5.5
FCFE yield (annualised) % 7.8% (9.7%) (11.8%) (2.4%) FCFE yield (annualised) % (0.9%) (7.1%) 5.7% 5.5%
EBITDA margin % 18.3% 12.4% 18.2% 9.2% EBITDA margin % 15.6% 13.9% 14.3% 13.6%
EBIT margin % 16.0% 9.5% 15.4% 6.8% EBIT margin % 13.0% 11.3% 11.7% 11.0%
EBITDA grow th % (25.2%) (36.3%) (5.5%) (25.2%) EBITDA grow th % (29.7%) (12.8%) 3.8% (4.7%)
EBIT grow th % (20.4%) (33.2%) (8.8%) (28.0%) EBIT grow th % (25.2%) (15.3%) 4.4% (6.1%)
Key assumptions 1H16 2H16 1H17 2H17e Key assumptions FY16 FY17e FY18e FY19e
Metro TV ad market grow th (5-city) % (0.4%) (3.9%) (4.5%) (2.0%) Metro TV ad market grow th (5-city) % (2.0%) (3.4%) -% -%
Nine share of TV ad market (5-city) % 38.2% 35.4% 35.0% 35.6% Nine share of TV ad market (5-city) % 36.9% 36.0% 36.5% 36.5%
Profit and Loss Ratios FY16 FY17e FY18e FY19e Cashflow Analysis FY16 FY17e FY18e FY19e
Revenue grow th % (20.4%) (2.5%) 1.4% 0.1% EBITDA $m 199.6 174.2 180.8 172.3
% of EBITDA in 1H % 63.4% 68.6% 67.5% 65.3% Ch in Working Capital $m 21.8 15.8 38.4 43.0
Effective Tax Rate % 28.1% 29.0% 28.0% 28.0% Net Interest Paid $m 13.7 10.4 8.1 8.6
PER (adj) x 7.5 9.1 8.5 9.0 Tax Paid $m 38.1 55.2 48.2 36.5
EV/EBIT x 17.0 -5.7 6.8 7.4 Other $m (75.8) (116.9) 1.7 1.8
EV/EBITDA x 5.3 6.4 5.7 6.1 Operating Cashflow $m 50.3 -24.1 87.9 86.0
EV/Sales x 0.8 0.9 0.8 0.8 Acquisitions $m 106.0 17.4 - -
Capex $m 58.0 37.5 38.0 38.1
Balance Sheet Ratios FY16 FY17e FY18e FY19e Asset Sales $m 534.7 134.1 111.0 -
Other $m - - - -
ROE % 2.9% (19.6%) 9.7% 9.7% Investing Cashflow $m 370.7 79.2 73.0 (38.1)
ROFE % 11.9% 11.8% 13.1% 11.8% Dividends Paid $m 114.7 74.0 76.4 73.7
ROA % 9.0% 8.3% 8.7% 8.1% Equity movements $m (49.0) - - -
Adj Net Debt $m 177.6 237.0 152.6 178.3 Debt movements $m (357.5) 69.5 (84.4) 25.8
Adj Net Debt/Equity x 0.1 0.2 0.2 0.2 Other $m (36.7) (40.1) - -
Adj Net Debt/EBITDA x 0.9 1.3 0.8 1.0 Financing Cashflow $m (558.0) (44.5) (160.9) (48.0)
Interest Cover (EBIT) x 31.2 16.0 18.3 16.2
EFPOWA m 883.6 871.4 871.4 871.4 Net Cashflow $m (137.0) 10.5 - 0.0
Divisional estimates FY16 FY17e FY18e FY19e Balance Sheet FY16 FY17e FY18e FY19e
TV $m 1,130.0 1,083.3 1,094.1 1,088.4 Cash $m 42.9 53.3 53.3 53.3
Events (sold in 1H16) $m - - - - Receivables $m 345.8 363.0 388.9 415.1
Digital $m 149.9 166.5 173.2 180.1 Inventories $m 139.2 171.5 188.5 205.7
Total revenue $m 1,279.9 1,249.9 1,267.3 1,268.5 Investments $m - - - -
TV $m 183.5 154.1 159.4 149.5 PP&E $m 123.3 120.7 123.2 136.5
Events (sold in 1H16) $m - - - - Intangibles $m 1,044.1 827.9 719.6 711.1
Digital $m 26.0 27.5 28.6 29.7 Other Assets $m 309.5 253.5 254.1 254.7
Other $m (9.8) (7.4) (7.2) (7.0) Total Assets $m 2,004.7 1,790.1 1,727.7 1,776.4
Total EBITDA $m 199.6 174.2 180.8 172.3 Payables $m 375.7 386.5 390.9 391.2
Short Term Debt $m 0.1 - - -
Long Term Debt $m 220.4 290.3 205.9 231.7
Snapshot Current Provisions $m 93.8 82.2 82.2 82.2
Current price $ 1.00 Other Liabilities $m 80.9 68.7 68.7 68.7
EFPOWA # 884 Total Liabilities $m 770.9 827.7 747.7 773.8
Market cap $m 884 Shareholders Funds $m 1,233.8 962.4 980.0 1,002.6
Net debt $m 178 Minority Interests $m - - - -
EV $m 1,061 Shaereholder Equity $m 1,233.8 962.4 980.0 1,002.6
Macquarie Wealth Management Media sector
9 March 2017 34
Source: Company data, Macquarie Research, March 2017
News Corp (NWS, NWSA) All figures in USD $12.66Interim 1H17a 2H17e 1H18e 2H18e Full year FY16a FY17e FY18e FY19e
Revenue $m 4,081.0 3,794.6 3,954.8 3,710.3 Revenue $m 8,292.0 7,875.6 7,665.1 7,591.2
Opex $m 3,622.0 3,359.2 3,431.0 3,259.4 Opex $m 7,431.0 6,981.2 6,690.4 6,563.3
EBITDA $m 459.0 435.3 523.8 450.9 EBITDA $m 861.0 894.3 974.7 1,027.9
D&A $m 240.0 238.4 223.2 226.9 D&A $m 505.0 478.4 450.1 422.7
EBIT $m 219.0 196.9 300.6 224.0 EBIT $m 356.0 415.9 524.6 605.2
Associates $m -15.0 25.0 18.5 15.0 Associates $m 30.0 10.0 33.4 39.2
EBIT incl. assoc $m 204.0 221.9 319.1 239.0 EBIT incl. assoc $m 386.0 425.9 558.0 644.4
Net Interest Expense $m -22.0 -26.0 -27.0 -27.7 Net Interest Expense $m -43.0 -48.0 -54.7 -57.8
Pre-Tax Profit $m 226.0 247.9 346.0 266.7 Pre-Tax Profit $m 429.0 473.9 612.7 702.3
Tax Expense $m 82.0 71.1 98.3 75.5 Tax Expense $m 141.0 153.1 173.8 198.9
Net Profit $m 144.0 176.8 247.8 191.2 Net Profit $m 288.0 320.8 438.9 503.3
Minority Interests $m 40.0 29.1 46.7 42.4 Minority Interests $m 56.0 69.1 89.1 101.9
Adjusted Earnings $m 104.0 147.8 201.1 148.8 Adjusted Earnings $m 232.0 251.8 349.9 401.4
NRIs (net of tax) $m -409.0 372.2 0.0 0.0 NRIs (net of tax) $m -70.0 -36.9 0.0 0.0
Reported Earnings $m -305.0 519.9 201.1 148.8 Reported Earnings $m 162.0 214.9 349.9 401.4
EPS (reported) cps -52.5 89.5 34.6 25.6 EPS (reported) cps 27.9 37.0 60.2 69.1
EPS (adj) cps 17.9 25.4 34.6 25.6 EPS (adj) cps 40.0 43.3 60.2 69.1
PER (reported) x -12.1 7.1 18.3 24.7 PER (reported) x 45.4 34.2 21.0 18.3
PER (adj) x 35.4 24.9 18.3 24.7 PER (adj) x 31.7 29.2 21.0 18.3
EPS Grow th (adj) % (28.8%) 71.8% 93.3% 0.7% EPS Grow th (adj) % (14.9%) 8.5% 39.0% 14.7%
DPS cps 10.0 10.0 10.0 10.0 DPS cps 20.0 20.0 20.0 20.0
Dividend yield % 0.8% 0.8% 0.8% 0.8% Dividend yield % 1.6% 1.6% 1.6% 1.6%
Payout ratio (adj) % 55.9% 39.3% 28.9% 39.1% Payout ratio (adj) % 50.1% 46.2% 33.2% 28.9%
FCF/sh cps -17.9 98.5 49.9 53.9 FCF/sh cps 119.9 80.6 103.9 108.1
FCFE yield (annualised) % (2.8%) 15.6% 7.9% 8.5% FCFE yield (annualised) % 9.5% 6.4% 8.2% 8.5%
EBITDA margin % 11.2% 11.5% 13.2% 12.2% EBITDA margin % 10.4% 11.4% 12.7% 13.5%
EBIT margin % 5.4% 5.2% 7.6% 6.0% EBIT margin % 4.3% 5.3% 6.8% 8.0%
EBITDA grow th % 0.4% 7.7% 14.1% 3.6% EBITDA grow th % (4.5%) 3.9% 9.0% 5.5%
EBIT grow th % 2.8% 37.7% 37.3% 13.8% EBIT grow th % (4.3%) 16.8% 26.1% 15.4%
Profit and Loss Ratios FY16a FY17e FY18e FY19e Cashflow Analysis FY16a FY17e FY18e FY19e
Revenue grow th % (3.9%) (5.0%) (2.7%) (1.0%) EBITDA $m 861.0 894.3 974.7 1,027.9
EBITDA grow th % (4.5%) 3.9% 9.0% 5.5% Ch in Working Capital $m 161.0 (4.9) 20.4 7.8
% of EBITDA in 1H % 53.1% 51.3% 53.7% 53.6% Net Interest Paid $m (43.0) (48.0) (54.7) (57.8)
Effective Tax Rate % 0.4 0.3 0.3 0.3 Tax Paid $m 147.0 173.1 173.8 198.9
EV/EBIT x 16.6 13.3 9.6 7.5 Other $m 34.0 10.0 33.4 39.2
EV/EBITDA x 6.8 6.2 5.2 4.4 Operating Cashflow $m 952.0 774.3 909.4 933.9
EV/Sales x 0.7 0.7 0.7 0.6 Acquisitions $m (478.0) (342.0) - -
Capex $m (256.0) (306.0) (306.0) (306.0)
Balance Sheet Ratios FY16a FY17e FY18e FY19e Asset Sales $m - 59.0 - -
Other $m (390.0) 273.0 - -
ROE % 2.0% 2.2% 3.0% 3.3% Investing Cashflow $m (1,124.0) (316.0) (306.0) (306.0)
ROFE % 3.4% 4.4% 5.6% 6.6% Dividends Paid $m (147.0) (135.1) (116.2) (116.2)
ROA % 1.7% 1.9% 2.8% 3.3% Equity movements $m (41.0) - - -
Net Debt $m -1463.0 -1810.2 -2297.4 -2809.1 Debt movements $m 342.0 - - -
Net Debt/Equity x -0.1 -0.2 -0.2 -0.2 Other $m (4.0) (21.0) - -
Net Debt/EBITDA x -1.7 -2.0 -2.4 -2.7 Financing Cashflow $m 150.0 (156.1) (116.2) (116.2)
Interest Cover (EBIT) x -8.3 -8.7 -9.6 -10.5
EFPOWA m 580.7 581.0 581.0 581.0 Net Cashflow $m (22.0) 302.2 487.2 511.7
Divisional EBITDA estimates FY16a FY17e FY18e FY19e Balance Sheet FY16a FY17e FY18e FY19e
New s & Information Services $m 494.0 403.6 384.2 376.6 Cash $m 1,832.0 2,101.2 2,588.4 3,100.1
Digital Real Estate $m 222.0 298.3 398.8 464.6 Receivables $m 1,229.0 1,154.0 1,128.3 1,118.5
Book Publishing $m 185.0 222.5 222.5 222.5 Inventories $m - - - -
Cable Netw orks (Fox Sports) $m 124.0 125.0 119.2 114.3 Investments $m 2,270.0 1,932.0 1,932.0 1,932.0
Other (including Education) $m (164.0) (155.0) (150.0) (150.0) PP&E $m 2,405.0 1,940.6 1,796.5 1,679.8
Total EBITDA $m 861.0 894.3 974.7 1,027.9 Intangibles $m 5,921.0 6,089.0 6,089.0 6,089.0
Other Assets $m 1,826.0 1,433.0 1,433.0 1,433.0
Share of Associate profit (Foxtel) $m 30.0 10.0 33.4 39.2 Total Assets $m 15,483.0 14,649.8 14,967.3 15,352.4
Payables $m 217.0 236.0 230.8 228.8
Short Term Debt $m - - - -
Long Term Debt $m 369.0 291.0 291.0 291.0
Snapshot Current Provisions $m - - - -
Current price $ 12.66 Other Liabilities $m 3,115.0 2,791.0 2,791.0 2,791.0
EFPOWA # 581.0 Total Liabilities $m 3,701.0 3,318.0 3,312.8 3,310.8
Market cap $m 7,354.8 Shareholders Funds $m 11,564.0 11,029.7 11,263.3 11,548.6
Net debt $m (1,296.0) Minority Interests $m 218.0 302.1 391.2 493.1
EV $m 6,058.8 Shaereholder Equity $m 11,782.0 11,331.7 11,654.5 12,041.6
Macquarie Wealth Management Media sector
9 March 2017 35
Source: Company data, Macquarie Research, March 2017
oOh!media Limited (OML) $4.43Interim 1H16 2H16 1H17e 2H17e Full year CY16 CY17e CY18e CY19e
Revenue $m 146.6 189.5 171.2 209.9 Revenue $m 336.1 381.2 393.4 403.1
Opex $m 119.9 142.7 136.7 152.9 Opex $m 262.6 289.6 299.3 307.8
EBITDA $m 26.8 46.8 34.6 57.0 EBITDA $m 73.5 91.6 94.1 95.4
Depreciation $m 7.2 9.1 9.5 10.0 Depreciation $m 16.3 19.5 20.7 19.9
Amortisation - PPA $m 4.8 5.4 4.8 5.9 Amortisation - PPA $m 10.1 10.6 10.6 10.6
Amortisation - Other $m 0.6 0.6 0.6 0.6 Amortisation - Other $m 1.3 1.3 1.3 1.3
D&A $m 12.6 15.1 14.9 16.5 D&A $m 27.7 31.4 32.6 31.8
EBIT $m 14.2 31.7 19.6 40.5 EBIT $m 45.9 60.1 61.5 63.6
Associates $m 0.1 -0.1 0.0 0.0 Associates $m 0.0 0.0 0.0 0.0
EBIT incl. assoc $m 14.3 31.6 19.6 40.5 EBIT incl. assoc $m 45.8 60.1 61.4 63.6
Net Interest Expense $m 2.4 2.6 2.6 2.5 Net Interest Expense $m 5.0 5.1 4.4 3.3
Pre-Tax Profit $m 11.8 29.0 17.0 38.0 Pre-Tax Profit $m 40.9 55.0 57.0 60.3
Tax Expense $m 5.8 10.9 6.6 13.3 Tax Expense $m 16.7 19.9 20.7 21.7
Net Profit $m 6.0 18.1 10.4 24.6 Net Profit $m 24.2 35.1 36.3 38.7
Minority Interests $m 0.0 -0.1 0.0 0.0 Minority Interests $m -0.1 0.0 0.0 0.0
Adjusted Earnings $m 10.7 23.6 15.2 30.5 Adjusted Earnings $m 34.4 45.7 47.0 49.3
NRIs (net of tax) $m 0.0 -2.7 -0.4 0.0 NRIs (net of tax) $m -2.7 -0.4 0.0 0.0
Reported Earnings $m 6.0 15.6 10.1 24.6 Reported Earnings $m 21.6 34.7 36.3 38.7
EPS (reported) cps 4.0 10.0 6.1 15.0 EPS (reported) cps 14.0 21.1 22.1 23.6
EPS (adj) cps 7.2 15.2 9.3 18.6 EPS (adj) cps 22.3 27.8 28.6 30.0
PER (reported) x 55.5 22.2 36.0 14.8 PER (reported) x 31.7 20.9 20.0 18.8
PER (adj) x 30.9 14.6 23.9 11.9 PER (adj) x 19.8 15.9 15.5 14.7
DPS cps 4.0 10.0 5.0 10.7 DPS cps 14.0 15.7 16.2 16.9
Dividend yield % 0.9% 2.3% 1.1% 2.4% Dividend yield % 3.2% 3.6% 3.7% 3.8%
Payout ratio (adj) % 52.7% 64.2% 51.8% 56.6% Payout ratio (adj) % 60.5% 55.0% 55.0% 55.0%
FCF/sh cps -6.6 16.1 14.1 9.5 FCF/sh cps 9.7 23.6 31.8 32.7
FCFE yield (annualised) % (3.0%) 7.3% 6.4% 4.3% FCFE yield (annualised) % 2.2% 5.3% 7.2% 7.4%
EBITDA margin % 18.3% 24.7% 20.2% 27.1% EBITDA margin % 21.9% 24.0% 23.9% 23.7%
EBIT margin % 9.7% 16.7% 11.5% 19.3% EBIT margin % 13.6% 15.8% 15.6% 15.8%
EBITDA grow th % 36.6% 22.7% 29.1% 21.9% EBITDA grow th % 27.4% 24.5% 2.7% 1.4%
EBIT grow th % 60.5% 19.0% 38.6% 27.7% EBIT grow th % 29.3% 31.1% 2.2% 3.5%
Profit and Loss Ratios CY16 CY17e CY18e CY19e Cashflow Analysis CY16 CY17e CY18e CY19e
Revenue grow th % 20.1% 13.4% 3.2% 2.5% EBITDA $m 73.5 91.6 94.1 95.4
EBITDA grow th % 27.4% 24.5% 2.7% 1.4% Ch in Working Capital $m 9.4 2.6 (0.9) (0.8)
% of EBITDA in 1H % 36.4% 37.8% 37.7% 37.7% Net Interest Paid $m 5.4 5.1 4.4 3.3
Effective Tax Rate % 0.4 0.3 0.3 0.3 Tax Paid $m 9.8 19.8 20.7 21.7
EV/EBIT x 18.9 13.9 13.1 12.2 Other $m (10.2) - - -
EV/EBITDA x 10.9 9.1 8.6 8.2 Operating Cashflow $m 57.5 69.3 68.0 69.7
EV/Sales x 2.4 2.2 2.0 1.9 Acquisitions $m 84.2 - - -
Capex $m 39.0 30.0 15.9 16.0
Balance Sheet Ratios CY16 CY17e CY18e CY19e Asset Sales $m - - - -
Other $m (3.7) (3.0) - -
ROE % 12.3% 14.2% 14.1% 11.0% Investing Cashflow $m (127.0) (33.0) (15.9) (16.0)
ROFE % 10.4% 13.7% 14.5% 15.5% Dividends Paid $m 16.0 24.6 26.9 27.0
ROA % 8.6% 11.4% 11.9% 12.7% Equity movements $m 61.8 - - -
Net Debt $m 114.2 103.0 77.8 51.2 Debt movements $m 18.0 (11.2) (25.2) (26.7)
Net Debt/Equity x 0.2 0.1 0.1 0.1 Other $m (1.2) - - -
Net Debt/EBITDA x 1.6 1.1 0.8 0.5 Financing Cashflow $m 62.5 (35.8) (52.1) (53.6)
Interest Cover (EBIT) x 9.2 11.7 13.9 19.6
EFPOWA m 156.0 164.1 164.1 164.1 Net Cashflow $m (7.0) 0.5 - -
Divisional revenue estimatesCY16 CY17e CY18e CY19e Balance Sheet CY16 CY17e CY18e CY19e
Road $m 124.6 134.6 138.6 142.1 Cash $m 8.2 8.2 8.2 8.2
Retail $m 109.2 115.7 119.2 122.2 Receivables $m 79.4 84.0 86.7 88.8
Fly $m 56.0 58.2 60.0 61.5 Inventories $m 0.6 - - -
Place $m 28.9 46.3 48.6 49.8 Investments $m - - - -
Australia $m 318.7 354.8 366.4 375.5 PP&E $m 102.8 113.3 108.5 104.7
NZ $m 9.8 10.8 11.1 11.4 Intangibles $m 329.4 317.5 305.5 293.6
Total revenue $m 328.5 365.6 377.5 386.9 Other Assets $m 18.3 20.8 20.7 20.7
Total Assets $m 538.6 543.7 529.6 516.1
Payables $m 47.9 54.6 56.3 57.7
Short Term Debt $m 0.1 0.1 0.1 0.1
Long Term Debt $m 122.3 111.2 86.0 59.3
Snapshot Current Provisions $m 25.6 25.6 25.6 25.6
Current price $ 4.43 Other Liabilities $m 15.9 15.4 15.4 15.4
EFPOWA # 156.0 Total Liabilities $m 211.8 206.7 183.3 158.0
Market cap $m 691.0 Shareholders Funds $m 328.2 338.3 347.7 359.4
Net debt $m 114.2 Minority Interests $m (1.4) (1.4) (1.4) (1.4)
EV $m 805.2 Shaereholder Equity $m 326.9 336.9 346.4 358.0
Macquarie Wealth Management Media sector
9 March 2017 36
Source: Company data, Macquarie Research, March 2017
REA Group (REA) $55.22Interim 1H16 2H16 1H17 2H17e Full year FY16 FY17e FY18e FY19e
Revenue $m 314.8 315.0 337.3 332.4 Revenue $m 629.8 669.7 782.8 856.4
Opex $m 128.9 153.5 135.5 149.2 Opex $m 282.5 284.7 321.5 345.2
EBITDA $m 185.9 161.4 201.8 183.2 EBITDA $m 347.3 385.0 461.4 511.1
D&A $m 15.8 19.2 17.9 17.5 D&A $m 34.9 35.4 35.5 36.3
EBIT $m 170.1 142.3 184.0 165.7 EBIT $m 312.4 349.6 425.9 474.8
Associates $m -5.9 -8.0 -1.8 -1.5 Associates $m -13.9 -3.2 -1.2 1.1
EBIT incl. assoc $m 164.2 134.3 182.2 164.2 EBIT incl. assoc $m 298.6 346.4 424.7 476.0
Net Interest Expense $m -0.7 7.2 6.2 3.1 Net Interest Expense $m 6.5 9.4 1.9 0.5
Pre-Tax Profit $m 165.0 127.1 176.0 161.1 Pre-Tax Profit $m 292.1 337.0 422.7 475.5
Tax Expense $m 49.8 41.6 54.2 46.9 Tax Expense $m 91.4 101.1 126.8 142.6
Net Profit $m 115.1 85.5 121.8 114.2 Net Profit $m 200.7 235.9 295.9 332.8
Minority Interests $m 0.0 0.0 0.0 0.0 Minority Interests $m 0.0 0.0 0.0 0.0
Adjusted Earnings $m 115.1 85.5 121.8 114.2 Adjusted Earnings $m 200.7 235.9 295.9 332.8
NRIs (net of tax) $m 0.0 52.6 170.4 0.0 NRIs (net of tax) $m 52.6 170.4 0.0 0.0
Reported Earnings $m 115.1 138.1 292.1 114.2 Reported Earnings $m 253.3 406.3 295.9 332.8
EPS (Adj/dil) cps 87.4 64.9 92.5 86.7 EPS (Adj/dil) cps 152.3 179.1 224.7 252.7
EPS Grow th % 21.9% 1.9% 5.8% 33.5% EPS Grow th % 12.5% 17.6% 25.4% 12.5%
DPS cps 36.0 45.5 40.0 49.6 DPS cps 81.5 89.6 112.3 176.9
Payout ratio (adj) % 41.2% 70.1% 43.3% 57.2% Payout ratio (adj) % 53.5% 50.0% 50.0% 70.0%
FCF/sh cps 75.5 62.2 84.3 81.2 FCF/sh cps 137.7 165.6 223.3 250.7
FCFE yield % 2.7% 2.3% 3.1% 2.9% FCFE yield % 2.5% 3.0% 4.0% 4.5%
EBITDA margin % 59.0% 51.3% 59.8% 55.1% EBITDA margin % 55.2% 57.5% 58.9% 59.7%
EBIT margin % 54.0% 45.2% 54.5% 49.8% EBIT margin % 49.6% 52.2% 54.4% 55.4%
EBITDA grow th % 28.6% 14.2% 8.6% 13.5% EBITDA grow th % 21.5% 10.8% 19.8% 10.8%
EBIT grow th % 29.5% 11.6% 8.1% 16.4% EBIT grow th % 20.7% 11.9% 21.8% 11.5%
Key assumptions 1H16 2H16 1H17 2H17e Key assumptions FY16 FY17e FY18e FY19e
ARPA ($/month) k 3,655 3,238 3,875 3,497 ARPA ($/month) k 3,355 3,657 4,096 4,342
Paying agents % 10,340 10,720 10,858 11,042 Paying agents % 10,720 11,042 11,373 11,715
Total agent reveunues k 243 219 272 250 Total agent reveunues k 462 522 603 658
% Depth agent revenues % 88.7% 87.5% 89.7% 90.0% % Depth agent revenues % 88.1% 89.9% 90.0% 90.0%
Profit and Loss Ratios FY16 FY17e FY18e FY19e Cashflow Analysis FY16 FY17e FY18e FY19e
Revenue grow th % 20.4% 6.3% 16.9% 9.4% EBITDA $m 347.3 385.0 461.4 511.1
% of EBITDA in 1H % 53.5% 52.4% 52.9% 52.9% Ch in Working Capital $m -19.1 -19.2 3.9 6.0
Effective Tax Rate % 26.6% 30.0% 30.0% 30.0% Net Interest Paid $m -3.3 -9.4 -1.9 -0.5
PER (adj) x 36.2 30.8 24.6 21.9 Tax Paid $m -100.9 -95.4 -126.8 -142.6
EV/EBIT x 21.8 14.1 17.0 14.9 Other $m -2.7 -1.8 0.0 0.0
EV/EBITDA x 22.0 19.0 15.7 13.9 Operating Cashflow $m 221.3 259.3 336.6 374.0
EV/Sales x 12.1 10.9 9.2 8.3 Acquisitions $m -528.9 -69.1 -98.4 0.0
Capex $m -40.0 -41.2 -42.5 -43.7
Balance Sheet Ratios FY16 FY17e FY18e FY19e Asset Sales $m 0.0 194.0 0.0 0.0
Other $m 0.0 -6.2 0.0 0.0
ROE % 39.8% 46.8% 26.8% 26.4% Investing Cashflow $m -568.9 77.6 -140.8 -43.7
ROFE % 28.9% 33.3% 37.1% 41.2% Dividends Paid $m -100.8 -112.8 -131.1 -185.6
ROA % 32.1% 25.3% 29.0% 30.9% Equity movements $m 0.0 -1.3 0.0 0.0
Net Debt $m 365.4 26.2 -38.4 -183.1 Debt movements $m 498.0 -183.8 35.4 -44.7
Net Debt/Equity x 0.1 0.0 0.0 0.0 Other $m -2.0 0.0 0.0 0.0
Net Debt/EBITDA x 1.1 0.1 -0.1 -0.4 Financing Cashflow $m 395.3 -297.8 -95.8 -230.3
Interest Cover (EBIT) x 48.3 37.4 221.6 927.7
EFPOWA m 131.7 131.7 131.7 131.7 Net Cashflow $m 47.7 39.1 100.0 100.0
Divisional estimates FY16 FY17e FY18e FY19e Balance Sheet FY16 FY17e FY18e FY19e
Australia $m 555.2 620.9 712.5 772.1 Cash $m 126.8 166.3 266.3 366.3
Europe $m 50.7 - - - Receivables $m 96.5 93.8 115.9 126.7
Asia $m 23.9 48.8 70.3 84.3 Inventories $m 0.0 0.0 0.0 0.0
Total revenue $m 629.8 669.7 782.8 856.4 Investments $m 281.8 357.7 454.9 456.0
Australia $m 345.9 396.1 469.5 517.1 PP&E $m 16.2 12.8 12.2 11.9
Europe $m 9.1 - - - Intangibles $m 955.4 932.6 940.2 948.0
Asia $m 9.3 6.6 10.6 13.6 Other Assets $m 6.6 6.3 6.3 6.3
Corporate $m (16.9) (17.8) (18.7) (19.6) Total Assets $m 1483.3 1569.5 1795.7 1915.2
Total EBITDA $m 347.3 385.0 461.4 511.1 Payables $m 179.0 154.2 180.2 197.1
Short Term Debt $m 0.0 0.0 0.0 0.0
Long Term Debt $m 492.3 192.5 227.8 183.2
Snapshot Current Provisions $m 54.3 56.0 56.0 56.0
Current price $ 55.22 Other Liabilities $m 41.9 144.5 144.5 144.5
EFPOWA # 131.7 Total Liabilities $m 767.5 547.2 608.6 580.9
Market cap $m 7,273.3 Shareholders Funds $m 715.2 1021.9 1186.7 1333.9
Net debt $m 206.6 Minority Interests $m 0.6 0.4 0.4 0.4
EV $m 7479.9 Shaereholder Equity $m 715.8 1022.3 1187.1 1334.3
Macquarie Wealth Management Media sector
9 March 2017 37
Source: Company data, Macquarie Research, March 2017
SEEK (SEK) $15.13Interim 1H17 2H17E 1H18E 2H18E Full year FY16 FY17E FY18E FY19E
Revenue $m 487.9 492.2 526.6 554.2 Revenue $m 950.4 980.1 1,080.8 1,202.1
Opex $m 304.1 305.6 244.7 426.4 Opex $m 583.4 609.7 671.1 741.1
EBITDA $m 183.8 186.6 281.9 127.8 EBITDA $m 367.0 370.4 409.7 460.9
Depreciation $m 6.7 7.1 7.4 7.8 Depreciation $m 13.7 13.8 15.2 16.9
Amort. of intangibles (ex PPA) $m 13.9 14.3 15.1 15.1 Amort. of intangibles (ex PPA) $m 26.8 28.2 30.2 31.9
Amort. of share-based compensation $m 3.7 7.3 8.5 8.5 Amort. of share-based compensation $m 18.4 11.0 17.0 17.5
D&A (ex PPA amort.) $m 24.3 28.7 31.0 31.4 D&A (ex PPA amort.) $m 58.9 53.0 62.4 66.4
EBIT $m 159.5 157.9 250.9 96.4 EBIT $m 308.1 317.4 347.3 394.6
Associates $m 3.8 4.3 7.9 7.9 Associates $m 12.2 8.1 15.9 16.7
EBIT incl. assoc $m 163.3 162.3 258.9 104.3 EBIT incl. assoc $m 320.3 325.5 363.2 411.2
Net Interest Expense $m 5.2 11.9 10.2 9.8 Net Interest Expense $m 13.0 17.1 19.9 15.6
Pre-Tax Profit $m 158.1 150.3 248.7 94.6 Pre-Tax Profit $m 307.3 308.4 343.2 395.7
Tax Expense $m 37.0 37.7 60.9 21.8 Tax Expense $m 75.0 74.7 82.7 96.6
Net Profit $m 121.1 112.6 187.8 72.7 Net Profit $m 232.3 233.7 260.5 299.0
Minority Interests $m 16.5 16.1 21.7 21.7 Minority Interests $m 44.6 32.5 43.3 52.0
Adjusted profit (ex PPA amort.) $m 104.6 96.6 166.1 51.1 Adjusted profit (ex PPA amort.) $m 187.7 201.2 217.2 247.0
Amortisation of PPA (pre tax) $m 5.3 2.2 2.0 1.1 Amortisation of PPA (pre tax) $m 12.9 7.5 3.1 0.0
NRIs (net of tax) $m -15.3 0.5 0.5 0.1 NRIs (net of tax) $m 182.3 -14.7 0.6 0.0
Reported profit $m 84.1 94.9 164.6 50.1 Reported profit $m 357.1 179.0 214.7 247.0
Adjusted EPS (ex PPA amort.) cps 30.3 27.8 47.9 14.7 Adjusted EPS (ex PPA amort.) cps 54.6 58.1 62.6 71.2
Adjusted EPS grow th % 10.8% 2.1% 58.2% (47.1%) Adjusted EPS grow th % (5.9%) 6.4% 7.8% 13.7%
Reported EPS cps 24.3 27.3 47.4 14.4 Reported EPS cps 103.9 51.7 61.9 71.2
Reported EPS grow th % (69.6%) 14.9% 95.0% (47.2%) Reported EPS grow th % 26.3% (50.3%) 19.7% 15.0%
DPS cps 23.0 19.5 33.5 10.3 DPS cps 40.0 42.5 43.8 49.8
Dividend yield % 1.5% 1.3% 2.2% 0.7% Dividend yield % 2.6% 2.8% 2.9% 3.3%
Payout ratio (adj) % 76.0% 70.0% 70.0% 70.0% Payout ratio (adj) % 73.3% 73.1% 70.0% 70.0%
FCF/sh cps 10.1 24.5 60.9 8.5 FCF/sh cps 81.4 34.7 69.4 87.6
FCFE yield (annualised) % 1.3% 3.2% 8.1% 1.1% FCFE yield (annualised) % 5.4% 2.3% 4.6% 5.8%
EBITDA margin % 37.7% 37.9% 53.5% 23.1% EBITDA margin % 38.6% 37.8% 37.9% 38.3%
EBIT margin % 32.7% 32.1% 47.6% 17.4% EBIT margin % 32.4% 32.4% 32.1% 32.8%
EBITDA grow th % (4.9%) 7.4% 53.4% (31.5%) EBITDA grow th % 5.2% 0.9% 10.6% 12.5%
EBIT grow th % (2.9%) 9.9% 57.3% (39.0%) EBIT grow th % 1.5% 3.0% 9.4% 13.6%
Profit and Loss Ratios FY16 FY17E FY18E FY19E Cashflow Analysis FY16 FY17E FY18E FY19E
Revenue grow th % 10.7% 3.1% 10.3% 11.2% EBITDA $m 367.0 370.4 409.7 460.9
% of EBITDA in 1H % 52.7% 49.6% 68.8% 67.6% Ch in Working Capital $m (49.4) 23.2 0.4 0.5
Effective Tax Rate % 26.6% 25.5% 25.5% 25.5% Net Interest Paid $m 15.2 17.1 19.9 15.6
PER (adj) x 27.7 26.0 24.2 21.3 Tax Paid $m 51.0 160.0 98.5 90.7
EV/EBIT x 9.7 18.3 15.3 13.1 Other $m (15.3) - - -
EV/EBITDA x 15.1 15.1 13.5 11.7 Operating Cashflow $m 334.9 170.0 290.8 354.2
EV/Sales x 5.8 5.7 5.1 4.5 Acquisitions $m 39.0 - - -
Capex $m 54.9 50.0 50.0 50.0
Balance Sheet Ratios FY16 FY17E FY18E FY19E Asset Sales $m 331.6 - - -
Other $m 29.5 29.7 - -
ROE % 10.4% 10.9% 11.4% 12.3% Investing Cashflow $m 267.2 (20.3) (50.0) (50.0)
ROFE % 13.8% 14.1% 15.6% 17.9% Dividends Paid $m 140.1 145.6 183.9 164.4
ROA % 6.7% 7.3% 7.9% 8.9% Equity movements $m 14.6 - - -
Net Debt $m 317.8 331.4 274.5 134.7 Debt movements $m (184.7) 55.9 3.1 (79.8)
Net Debt/Equity x 0.2 0.2 0.1 0.1 Other $m (215.7) - - -
Net Debt/EBITDA x 0.9 0.9 0.7 0.3 Financing Cashflow $m (525.9) (89.7) (180.8) (244.2)
Interest Cover (EBIT) x 44.0 17.8 18.1 26.4
EFPOWA m 344.0 346.5 347.1 347.1 Net Cashflow $m 76.2 60.0 60.0 60.0
Divisional EBITDA estimates FY16 FY17E FY18E FY19E Balance Sheet FY16 FY17E FY18E FY19E
Classif ieds (Australia) $m 175.5 196.8 213.9 236.0 Cash $m 504.9 558.5 618.5 678.5
Classif ieds (Zhaopin) $m 79.7 86.6 102.5 121.7 Receivables $m 98.5 120.0 135.1 151.8
Classif ieds (Seek Asia) $m 75.8 76.6 84.2 92.6 Inventories $m - - - -
Seek Learning $m -1.9 -1.0 0.0 0.0 Investments $m 81.0 68.1 84.0 100.7
Brasil Online $m 34.0 29.6 26.2 27.0 PP&E $m 28.1 35.8 70.6 103.7
OCC Mexico $m 9.3 7.1 8.0 8.8 Intangibles $m 2,388.3 2,363.7 2,313.4 2,264.0
International other $m -5.4 -4.2 -4.2 -4.2 Other Assets $m 177.6 171.2 171.2 171.2
Total EBITDA $m 367.0 391.4 430.7 481.9 Total Assets $m 3,278.4 3,317.3 3,392.8 3,469.8
Payables $m 118.3 116.6 131.3 147.5
Short Term Debt $m 71.1 48.6 48.6 48.6
Long Term Debt $m 751.6 841.3 844.4 764.6
Snapshot Current Provisions $m 56.2 58.6 58.6 58.6
Current price $ 15.13 Other Liabilities $m 456.6 387.9 372.0 377.9
EFPOWA # 346 Total Liabilities $m 1,453.8 1,453.0 1,454.9 1,397.2
Market cap $m 5,232 Shareholders Funds $m 1,355.2 1,361.5 1,392.3 1,475.0
Net debt $m 364 Minority Interests $m 469.4 502.9 545.6 597.7
EV $m 5,596 Shaereholder Equity $m 1,824.6 1,864.4 1,938.0 2,072.6
Macquarie Wealth Management Media sector
9 March 2017 38
Source: Company data, Macquarie Research, March 2017
Southern Cross Media Group (SXL) $1.29Interim 1H17 2H17E 1H18E 2H18E Full year FY16 FY17E FY18E FY19E
Revenue $m 351.8 359.1 368.9 363.8 Revenue $m 642.3 710.9 732.7 746.6
Opex $m 259.5 274.1 273.8 279.1 Opex $m 474.9 533.6 552.9 567.5
EBITDA (inc Associates) $m 92.3 85.0 95.1 84.7 EBITDA (inc Associates) $m 167.4 177.3 179.8 179.1
Depreciation $m 15.5 15.6 15.6 15.1 Depreciation $m 28.9 31.0 30.6 30.6
Amortisation $m 0.0 0.0 0.0 0.0 Amortisation $m 0.0 0.0 0.0 0.0
D&A $m 15.5 15.6 15.6 15.1 D&A $m 28.9 31.0 30.6 30.6
EBIT $m 76.8 69.4 79.5 69.6 EBIT $m 138.6 146.3 149.1 148.4
Associates $m 0.3 0.0 0.1 0.1 Associates $m 0.3 0.3 0.3 0.3
EBIT incl. assoc $m 77.1 69.4 79.7 69.8 EBIT incl. assoc $m 138.9 146.5 149.4 148.7
Net Interest Expense $m 9.6 8.3 7.7 7.6 Net Interest Expense $m 24.7 18.0 15.3 14.0
Pre-Tax Profit $m 67.5 61.1 71.9 62.2 Pre-Tax Profit $m 114.2 128.6 134.1 134.7
Tax Expense $m 19.0 17.4 21.9 18.9 Tax Expense $m 36.9 36.4 40.8 41.0
Net Profit $m 48.5 43.7 50.0 43.3 Net Profit $m 77.2 92.2 93.3 93.7
Minority Interests $m 0.0 0.0 0.0 0.0 Minority Interests $m 0.0 0.0 0.0 0.0
Adjusted Earnings $m 48.5 43.7 50.0 43.3 Adjusted Earnings $m 77.2 92.2 93.3 93.7
NRIs (net of tax) $m 0.0 0.0 0.0 0.0 NRIs (net of tax) $m 0.0 0.0 0.0 0.0
Reported Earnings $m 48.5 43.7 50.0 43.3 Reported Earnings $m 77.2 92.2 93.3 93.7
EPS (Adj/dil) cps 6.3 5.7 6.5 5.6 EPS (Adj/dil) cps 10.1 12.0 12.1 12.2
EPS Grow th % 11.7% 28.9% 3.2% (1.0%) EPS Grow th % 15.0% 19.2% 1.2% 0.4%
DPS cps 3.8 4.0 4.6 3.9 DPS cps 6.8 7.7 8.5 8.5
Dividend yield % 2.9% 3.1% 3.5% 3.1% Dividend yield % 5.2% 6.0% 6.6% 6.6%
Payout ratio (adj) % 59.5% 70.0% 70.0% 70.0% Payout ratio (adj) % 67.2% 64.5% 70.0% 70.0%
FCF/sh cps 3.5 6.9 6.3 6.1 FCF/sh cps 22.1 10.4 12.3 12.4
FCFE yield (annualised) % 5.4% 10.7% 9.7% 9.4% FCFE yield (annualised) % 17.1% 8.0% 9.6% 9.6%
EBITDA margin % 26.2% 23.7% 25.8% 23.3% EBITDA margin % 26.1% 24.9% 24.5% 24.0%
EBIT margin % 21.8% 19.3% 21.6% 19.1% EBIT margin % 21.6% 20.6% 20.4% 19.9%
EBITDA grow th % 1.1% 11.7% 3.1% (0.4%) EBITDA grow th % 2.7% 5.9% 1.4% (0.4%)
EBIT grow th % (0.1%) 12.6% 3.5% 0.2% EBIT grow th % 3.0% 5.5% 2.0% (0.5%)
Key assumptions 1H17 2H17E 1H18E 2H18E Key assumptions FY16 FY17E FY18E FY19E
Metro radio ad market grow th % 1.5% 3.0% 3.0% 3.0% Metro radio ad market grow th % 5.9% 2.2% 3.0% 2.5%
SXL implied metro radio share % 31.6% 32.5% 31.5% 31.5% SXL implied metro radio share % 31.2% 31.5% 31.5% 31.5%
Regional TV ad market grow th % (1.4%) (2.0%) -% -% Regional TV ad market grow th % (6.2%) (1.7%) -% -%
SXL implied regional TV share % 33.9% 37.2% 37.0% 38.0% SXL implied regional TV share % 28.3% 35.5% 37.5% 38.0%
Profit and Loss Ratios FY16 FY17E FY18E FY19E Cashflow Analysis FY16 FY17E FY18E FY19E
Revenue grow th % 5.1% 10.7% 3.1% 1.9% EBITDA $m 167.4 177.3 179.8 179.1
% of EBITDA in 1H % 54.5% 52.1% 52.9% 53.6% Ch in Working Capital $m 22.3 3.4 0.8 1.0
Effective Tax Rate % 32.4% 28.4% 30.5% 30.5% Net Interest Paid $m 29.2 19.2 15.3 14.0
PER (adj) x 12.8 10.8 10.6 10.6 Tax Paid $m 32.8 41.9 40.8 41.0
EV/EBIT x 9.8 9.1 8.8 8.6 Other $m 109.8 (3.3) (3.3) (3.3)
EV/EBITDA x 8.1 7.5 7.3 7.1 Operating Cashflow $m 193.0 109.5 119.6 119.8
EV/Sales x 2.1 1.9 1.8 1.7 Acquisitions $m - - - -
Capex $m 23.3 30.0 25.0 25.0
Balance Sheet Ratios FY16 FY17E FY18E FY19E Asset Sales $m 16.1 12.6 - -
Other $m (0.1) (7.1) - -
ROE % 8.1% 9.2% 9.0% 8.8% Investing Cashflow $m (7.2) (24.5) (25.0) (25.0)
ROFE % 20.5% 21.3% 21.8% 21.8% Dividends Paid $m 33.7 55.8 65.6 66.2
ROA % 9.7% 11.5% 11.6% 11.6% Equity movements $m - - - -
Net debt $m 340.2 335.2 305.9 277.0 Debt movements $m (215.0) (76.8) (29.3) (28.8)
Adj Net Debt/Equity x 0.3 0.3 0.3 0.3 Other $m 14.3 (0.1) - -
Adj Net Debt/EBITDA x 2.0 1.9 1.7 1.5 Financing Cashflow $m (234.3) (132.6) (94.9) (95.1)
Interest Cover (EBIT) x 5.6 8.1 9.7 10.6
EFPOWA m 768.6 769.0 769.3 769.6 Net Cashflow $m (48.6) (47.6) (0.3) (0.3)
Divisional estimates FY16 FY17E FY18E FY19E Balance Sheet FY16 FY17E FY18E FY19E
Metro radio $m 242.3 254.0 257.2 263.6 Cash $m 94.8 47.4 47.4 47.4
Regional radio $m 169.0 176.1 179.8 183.6 Receivables $m 144.7 159.6 161.7 164.3
Regional TV $m 213.3 263.1 277.9 281.6 Inventories $m - - - -
Corporate $m 17.8 17.8 17.8 17.8 Investments $m 3.7 4.0 4.0 4.0
Total revenue $m 642.3 710.9 732.7 746.6 PP&E $m 145.2 144.7 139.1 133.5
Metro radio $m 51.4 56.4 53.7 54.0 Intangibles $m 1,289.5 1,298.4 1,298.4 1,298.4
Regional TV & radio $m 131.2 130.9 136.1 135.1 Other Assets $m 9.9 8.6 8.6 8.6
Corporate $m (14.9) (10.0) (10.0) (10.0) Total Assets $m 1,687.8 1,662.7 1,659.2 1,656.2
Total EBITDA $m 167.7 177.3 179.8 179.1 Payables $m 86.4 98.5 99.8 101.4
Short Term Debt $m 36.0 36.0 36.0 36.0
Long Term Debt $m 433.9 357.5 328.2 299.3
Snapshot Current Provisions $m 31.2 29.9 29.9 29.9
Current price $ 1.29 Other Liabilities $m 120.3 113.1 113.1 113.1
EFPOWA # 769 Total Liabilities $m 707.6 635.0 606.9 579.8
Market cap $m 992 Shareholders Funds $m 979.9 1,027.5 1,051.9 1,076.1
Net debt $m 348 Minority Interests $m 0.3 0.3 0.3 0.3
EV $m 1,340 Shaereholder Equity $m 980.1 1,027.8 1,052.2 1,076.4
Macquarie Wealth Management Media sector
9 March 2017 39
Source: Company data, Macquarie Research, March 2017
TEN Network Holdings
Year End 31 August 1H16 2H16 1H17E 2H17E FY16 FY17E FY18E FY19E
Profit & Loss
Sales
Sales revenue $m 334.2 342.2 345.9 354.2 676.4 700.1 696.8 711.0
Total Revenue $m 334.2 342.2 345.9 354.2 676.4 700.1 696.8 711.0
Operating Costs $m 324.1 347.8 336.8 361.6 671.9 698.4 704.3 690.6
EBITDA ex associate profits $m 10.1 (5.6) 9.1 (7.4) 4.5 1.7 (7.5) 20.4
- Depreciation & Amortisation $m 6.9 4.9 6.6 6.6 11.8 13.1 11.4 9.8
EBIT consolidated $m 3.3 (10.6) 2.5 (14.0) (7.3) (11.5) (18.9) 10.5
EBIT non-recurring $m 23.7 (149.0) - - (125.3) - - -
Share of Associates profits $m - - 0.7 (0.7) - - - -
Total EBIT $m 27.0 (159.6) 3.2 (14.6) (132.6) (11.5) (18.9) 10.5
- Net Interest Expense $m 9.3 9.8 3.3 3.4 19.11 6.67 7.09 6.86
Pretax Profit $m 17.7 (169.4) (0.1) (18.0) (151.7) (18.1) (26.0) 3.7
- Tax Expense $m 2.6 0.2 (0.0) 2.0 2.7 1.9 2.8 1.1
Profit before minorities $m 15.2 (169.6) (0.1) (20.0) (154.4) (20.1) (28.8) 2.6
- Minority Interests $m 1.8 0.6 1.8 0.8 2.4 2.6 2.9 3.2
Reported Profit $m 13.4 (170.2) (1.9) (20.8) (156.8) (22.7) (31.7) (0.6)
Adjusted Profit $m (10.4) (21.1) (1.9) (20.8) (31.5) (22.7) (31.7) (0.6)
Gross Cashflow $m (1.7) (15.5) 6.5 (13.4) (17.3) (6.9) (17.4) 12.5
EPS (adj) ¢ (3.1) (5.7) (0.5) (5.6) (8.9) (6.1) (8.5) (0.2)
CFPS ¢ (0.5) (4.2) 1.8 (3.6) (4.9) (1.9) (4.7) 3.4
DPS ¢ - - - - - - - -
Special DPS ¢ - - - - - - - -
Total dividend per share ¢ - - - - - - - -
Franking % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Year End 31 August 1H16 2H16 1H17E 2H17E FY16 FY17E FY18E FY19E
Cashflow Analysis
EBITDA $m 10.1 (5.6) 9.1 (7.4) 4.5 1.7 (7.5) 20.4
- Increase in Working Capital $m 19.0 5.3 (2.2) 2.5 24.3 0.3 (0.5) 2.2
- Net Interest Paid $m 0.6 0.5 3.3 3.4 1.1 6.7 7.1 6.9
- Tax Paid $m (0.6) 2.5 (0.0) 2.0 2.0 1.9 2.8 1.1
+ Other $m (18.8) (9.7) - - (20.2) - 25.0 -
Net Cash Used in Operating $m (27.7) (23.7) 8.0 (15.3) (51.4) (7.3) 8.1 10.3
+ Proceeds from Sale of PP&E $m 0.0 0.0 - - 0.0 - - -
+ Proceeds from Sale of Invest's & Bus's $m - 1.4 - - 1.4 - - -
- Capex $m 1.9 7.3 3.0 3.0 9.2 6.0 6.0 6.0
- Acquisitions & Investments $m - 1.0 - - 1.0 - - -
+ Other $m (0.7) 1.9 - - 1.2 - - -
Net Cash Used in Investing $m (2.6) (5.0) (3.0) (3.0) (7.6) (6.0) (6.0) (6.0)
- Dividends Paid $m - 2.5 - - 2.5 - - -
+ Equity Movements (inc. DRP) $m 146.4 (0.1) - - 146.2 - - -
+ Debt Movements $m (111.9) 30.0 - - (81.9) - - -
+ Other $m (0.7) 0.7 - - - - - -
Net Cash from Financing $m 33.7 28.1 - - 61.8 - - -
+ Net Exchange Rate Differences $m (0.0) (2.3) - - (2.4) - - -
Net Cash movement $m 1.4 (1.0) 5.0 (18.3) 0.4 (13.3) 2.1 4.3
Year End 31 August FY16 FY17E FY18E FY19E
Trading Information Balance Sheet ($m)
Share Price ($) 0.55$ Cash 14.8 1.5 3.6 7.9
Shares on Issue (m) 370.8 Debtors 104.7 97.0 96.6 98.6
Market capitalisation (A$m) 203.9 Inventory 154.0 165.0 164.2 167.5
Other 5.7 5.7 5.7 5.7
Current Assets 279.2 269.2 270.1 279.7
Fixed Assets 42.2 35.0 29.6 25.8
Other 12.7 6.5 - -
Intangibles 346.5 346.5 346.5 346.5
Total Assets 680.7 657.3 646.2 652.0
Creditors 152.3 155.3 154.5 157.7
Short Term Debt - - - -
Other 16.3 16.3 16.3 16.3
Current Liabilities 168.6 171.6 170.8 174.0
Long Term Debt 90.2 90.2 90.2 90.2
Other Liabilities 39.0 35.4 56.8 60.0
Total Liabilities 297.9 297.2 317.9 324.2
Net Assets 382.8 360.1 328.4 327.8
Debt related derivatives - - - -
Net debt 75.4 88.7 86.6 82.3
Macquarie Wealth Management Media sector
9 March 2017 40
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 31 December 2016
AU/NZ Asia RSA USA CA EUR Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients)
Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients)
Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients)
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This publication was disseminated on 08 March 2017 at 14:29 UTC.