Investment Matters

What matters this week: Ten saga wraps up (probably), Seven's being too cute, and CBA

Lachlan Murdoch and Bruce Gordon (of regional Win network fame) were back in the limelight this week (click here for the intro).  They instigated the whole Channel Ten administration process by pulling their debt guarantee from the company, and were slapped down on Monday by the court and on Tuesday by the creditors (who are the deciders of Ten's fate).

The court rejected the bid to reduce CBS's voting power at the creditors' meeting, along with any question over the adequacy of the Creditor's Report, although the associated delay in the creditors' meeting did provide enough time for them to get a second higher bid up. 

Then at the creditors' meeting, creditors almost unanimously backed the also revised bid from CBS (over Murdoch's and Gordon's revised bid).  This included Ten employees, who were in effect deciding who their future employer is to be.

So it looks like Murdoch's and Gordon's attempt to gain ownership of Ten on the cheap (or at all) has failed.  And the salt in the wound is they have made a significant loss on their investment.  It has been intimated Murdoch and / or Gordon may try to launch another round of legal action.  However, grounds to do so seem pretty questionable. 

Yep, backfire of the year.

In other corporate news this week, the telecoms minnow heading for major TPG released its FY-17 results (for the year ending 31-Jul-17).  It was a reasonable result, with revenue up 4% and underlying net profit increasing 16% (partly assisted by lower debt costs).   The company elected to prioritise investment in new generation mobile (to compete against Telstra and NBN in the city areas, and to progress a rollout in Singapore) thus cutting the dividend very materially (H2 2.0 cents vs H2 7.5 cents for FY-16).  Somewhat surprisingly, shareholders were initially supportive of investment over dividend, with the company's share price increasing 5.2% on the day of the results release (short covering may have part of this too).  However, some downbeat broker reports, and perhaps some grumpy retail shareholders, caused a 6.7% fall in the share price the following day.

The CBA announced the sale of its A&NZ life insurance businesses for $3.8bn to AIA Group (Hong Kong based life insurer with operations across Asia).  It is also reportedly considering selling or listing its fund's management business Colonial First State Asset Management.  A decade on from the GFC, capital requirements are increasingly forcing the banks back to their core business of banking.

Seven Group announced it is buying the 53.3% of Coates Hire it didn't already own, for $517m "funded via existing debt facilities and available cash" (with the read through being an equity raising was not required).  

The price represented an FY-18 EV/EBITDA multiple of ~5.9x (assuming 10% earnings growth as compared to FY-17).  Coates rents a more diverse fleet of equipment, across wider sections of the economy (e.g. building and road construction) than Emeco.  But it does provide a marker for Emeco who is, by comparison, trading on FY-18 EV/EBITDA of 5.5x (at a share price of 20cents).

Seven's announcement was made before market open on Wednesday and the share price increased 9.8% over the day.  Then, at ~8 pm, the company announced a $375m capital raising.

The announcement about funding the acquisition was most probably technically correct.  And the raising was opportunistic given the share price increase.  But the move was seen as a bit cute by a number of market participants.