Southern Cross Media
Regional TV and Regional Radio grew its revenue (versus pcp), as did Metro Radio. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 10% for the Regional business, with operational efficiencies driving an increase in margin. EBITDA for the Metro Radio division fell 3.6%. Expenses increased because of investment in content (for example, the introduction of Rove McManus and Sam Frost in the important 2Day Sydney morning drive slot). This division also did not achieve operational efficiency benefits (as is targeted when revenue increases). We view the investment in content as a positive: good content = ratings increase = additional advertising revenue over time.
There were some one-off items which influenced Southern Cross' result. $1.5m of revenue was received from the sale of AM radio sites, but this had an immaterial impact on profit. The company did, however, make a $2.4m profit on the sale of its shareholding in a non-core joint venture (DMD).
In relation to ratings, Metro Radio ratings increased to 28.3% and 28.7% for Q1 and Q2 FY-16 (compared to 27.4% and 27.9% in Q3 and Q4 FY-15). Ratings flow through to revenue. Audience share in regional TV increased as well, in a challenging advertising market.
Net debt reduced to $473m, down $34m on the position at the end of FY-15, With another $100m of debt reduction flagged from the ATN transaction (see W&D 12-Feb-16), the company's balance sheet is now conservatively positioned. As such, dividends were increased to 3.25cps. The company is forecasting FY-16 EBITDA to be higher than the pcp, between $163m and $166m. NPAT will be 16-20% higher, assisted by lower interest costs.
Southern Cross is growing in a tough operating environment, it is attractively priced and it provides a strong dividend yield (8.5% FY-16e including franking). Additionally, we expect the company to benefit from mooted changes to media ownership laws (but this is not the reason why we invest in it).