NZM.AX - NZ Media

[Scunny Bunny]

As requested here's my brief notes from the Lanyon pitch on ASX: NZM to Sohn Conference Sydney 17 Nov 17.  I have an affinity with this as I am also a holder of NZM. However, these are my NOTES from the Lanyon pitch, NOT my analysis other than to provide context.

 

Its worth contextualising that Australians lead the world in on-line property portals with REA Group (realestate.com.au) and the newly listed Domain. Domain was spun out of Fairfax Media (ASX: FXJ) - Australia's 2nd largest newspaper group whilst News Corp are the 62% shareholder of REA (which effectively makes up most of the market cap of NWS).  Australians are also the largest shareholders in Zillow (NASD: ZG). All this probably emanates from Australia's long term obsession with residential property which you can read about elsewhere. (leaving us with one of the highest debt/GDP ratios in the world and where buying a modest Sydney 3br house could buy you a virtual palace in one of the grand cities of Europe).

 

The NZM story is a bit like FXJ - break up value of media assets with declining newspaper but good radio and under appreciated digital assets. NZM was a spin off from APN (part of the Independent News & Media group the O'Reilly's built and lost) so that's an attraction to start with. The figures are in NZ$.  196m shares at 90c = $176m (the shares jumped 5% yesterday after the pitch). Effectively a P/E of 6x and a dividend yield of 11% twice covered by FCF.

 

Three bits to the company - newspapers, with NZ Herald (biggest paper in NZ based in Auckland which has 40% NZ population) (each bi city has its own paper - Dominion Post in W'ton and Press in C'church); radio with about 40% of the market including the biggest AM station Newstalk ZB and "digital". All up, NZM has 82% audience reach in NZ and the profit growth in the digital assets is offsetting the obvious ongoing reduction in print.

 

Lanyon see three upside aspects - (1) a merger with Fairfax in NZ which has been knocked back by NZ Commerce Commission but which is being appealed. They see little chance of the appeal succeeding BUT if it did, the cost synergies would be amazing; (2) "co-operation" with Fairfax in journalism, back office, services etc which they reckon would yield $7-$10m a year;  (3) new verticals and portals - NZ market worth $900m a year and NZM investing about $10m per annum.

 

Lanyon focus on ratings of other media assets which they reckon are P/E 12x for newspapers, 15.3x for radio and 22.5x for digital.  Their per share break up value for NZM is 5x EBITDA gives $1.63 a share less debt (0.48) = $1.15 or 6.5x FCF. Add on 0.16 per share for co-operation with FXJ and 0.12 for new verticals (this is where FXJ really made $) gives you $1.43 or about 60% upside.

 

Hope this helps those of you interested.

[thowed]

Thanks - great detail on the notes.

 

In the UK, there appears to be room for 2 online property portals only.  A bunch of big estate agents tried to do their own, but it hasn't worked - the big 2 appear to be entrenched.

 

Generally interesting, both their thesis, and as an insight into how Lanyon look at things.  I've seen a few of these 'print down, digital up' companies in different geographies, but haven't done enough work to decide how this is going to pan out.  It's an obvious thing to say, but it'll probably all be in managements' execution and adaptability.  Everyone in media is still feeling their way.

 

It's also hard to know quite how brutal the collapse in Regional media advertising will continue to be, or if things have bottomed.  Instinctively I think it's a generational thing, and so there will be a gentle decline as the older readers die off, and aren't replaced.