A cacophony of news in the media sector saw key stocks burst out of the blocks on Monday, with Ten Network Holdings soaring almost 35 per cent and Southern Cross Media Group and Nine Entertainment, jumping more than 5 per cent apiece at the open.
Investors are buoyed by the possibility the Turnbull government will abolish broadcasting licence fees and relax media ownership rules in this year’s budget, released on Tuesday.
Ten Network reports $232 million loss
The free-to-air broadcaster is pinning its future on securing a new $250 million loan.
Meanwhile shares in Fairfax Media, publisher of The Australian Financial Review, The Sydney Morning Herald and The Age newspapers, were trading 2.4 per cent higher after news broke over the weekend that private equity firm, TPG Capital approached the Fairfax board to buy property listings business Domain and the metropolitan publishing assets for 95 cents a share – an offer that values the entire company at $2.3 billion.
“Seven would just be salivating, thinking ‘thank God we’re no longer on the front page’,” said Fusion Strategy media analyst Steve Allen, referring to a much publicised sex scandal that’s dogged the top-rating network since last year.
TPG’s Fairfax offer could well smoke out others interested in buying parts or the entirety of the media company, said Mr Allen.
“Others have looked at the Financial Review,” he said. “Fairfax has never been willing to entertain the idea of a key masthead being sold separately, but this could well put it into play again.”
Channel Ten, whose market valuation dipped below $100 million after it a disastrous result release last month, is viewed as most likely to benefit from a relaxation of media ownership rules, which if passed could pave the way for a takeover of the embattled third-placed network.
Law change overdue
A likely beneficiary, said Mr Allen, was News Corp, whose shares were 2.4 per cent higher at the open.
Network Ten chief executive Paul Anderson.The network’s shares soared almost 35 per cent on Monday. Photo: Jessica Hromas
“I know News Corp are generally used as the whipping boy in all these things. One has to say that they have positioned themselves, whether by design and strategy or by luck, extremely well.
“They have said, many times, that they’re not interested in free-to-air television. But the precarious situation that Ten finds itself in might very well force their hand.”
Shares in media stocks including Nine Entertainment climbed on amid speculation media ownership laws will be relaxed on Tuesday. Photo: Louie Douvis
News Corp Australia co-chairman Lachlan Murdoch paid $128.2 million for a 7.7 per cent stake in Network Ten 2010. He is one of three wealthy investors who need to guarantee a $250 million debt facility needed to ensure Network Ten’s survival.
In a note to clients titled ‘From Canberra with love’, analysts at UBS led by Eric Choi, found the touted changes could deliver double digit percentage increases to the bottom lines of the major broadcasters.
y and large, media stocks are on the nose and have been for a long time.
Analyst Steve Allen
On the UBS number the reforms would lift Nine after tax profit by $13 million (up 12 per cent), Seven West Media’s by $15 million (11 per cent) and Southern Cross Media by $8 million (8 per cent).
“We think the potential cut in licence fees, far outweigh the potential loss in gaming revenues and additional spectrum fees,” the UBS note says.
Despite the media ownership law changes being seen as generally positive for the sector, they are long overdue, said Mr Allen. He said the media sector remains, for the most part, a risky investment for reasons unlikely to be fixed by a period of consolidation.
“By and large, media stocks are on the nose and have been for a long time. And rightly so when you see the profit and loss statements.
“It’s not easy to make money in the sector any longer.”
The full media reform package – which the Coalition has been trying to negotiate through the Senate since 2013 – will also abolish the two-out-of-three rule, which prevents one company controlling more than two out of radio, television and newspaper assets in the one geographical area.
Also to be axed is the reach rule, which prevents any holder of a single television licence from reaching more than 75 per cent of the population. The rules were intended to ensure media diversity but media proprietors say they are outdated in the internet age.
One shining light has been outdoor media companies, which enjoyed a lift in total outdoor bookings of 10.8 per cent year-on-year, worth $60.8 million, according to UBS.
Shares in APN Outdoor Media Group were up 4.7 per cent on Monday, and UBS has revenue forecasts of 8 per cent revenue growth year-on-year and expect further acquisition activity.
oOh!Media was trading 0.5 per cent higher on Monday.