The Fairfax Media Limited (ASX: FXJ) share price has rallied 9% following the release of its half-year profit result.
Here are the key takeaways from the Fairfax Media report:
- Revenue fell 4.7% to $913 million
- Net profit rose 205% to $84 million (or 6% on an underlying basis)
- A 50% franked dividend of 2 cents per share was declared
- A Domain demerger is underway, with Fairfax expected to hold between 60% and 70% of the ASX-listed property technology company
Fairfax is a leading Australian news and technology business, with publications like The Sydney Morning Herald, The Age, The Sun Herald, Financial Review, Brisbane Times, Money Magazine, Daily Life, Drive, RSVP and much more. Domain is the company's key technology service, challenging the mighty REA Group Ltd (ASX: REA) (owner of realestate.com.au) as our country's top property portal.
Results
During the half, Fairfax's Metro Media, Australian Community Media and Radio businesses reported profit growth. Domain Group reported a profit (before tax and interest) of around $50 million, down from $59 million in the same period last year. However, Domain's revenue rose 5.8% to $163 million.
"For the half, the Fairfax Group delivered net profit of $84.7 million, up 6% compared to the prior year," CEO Greg Hywood said. "Domain Group delivered strong digital advertising growth of 15%, notwithstanding a challenging listings environment."
"Our three publishing businesses maintained an intense focus on cost reduction, a stronger emphasis on digital publishing, and made progress in building new revenue opportunities," he added.
Domain Demerger
"Today we announced that we are conducting a strategic review of the Domain Group in preparation for Domain's potential separation into a new Fairfax controlled ASX-listed entity," Hywood commented. "Domain is well placed as it continues to strengthen its platform and position itself at the centre of the real-estate ecosystem."
Any deal would be subject to a number of approvals, including a shareholder vote and a satisfactory outcome from the ATO. Despite its ASX listing, the separate Domain business would still be majority owned by Fairfax, with a 60% to 70% shareholding. The deal is expected to be completed this calendar year.
"This strategic initiative arises from the Board's determination to maximise returns for Fairfax shareholders from Domain Group, which is positioned for strong long-term growth," Fairfax Chairman Nick Falloon said.
The deal is expected to cost between $10 million and $12 million. Therefore, I believe a conservative ballpark profit figure for Domain could be around $25 million. However, that's just a rough estimate.
Should you buy Fairfax?
At the moment, Fairfax's Domain is probably undervalued because investors don't want the exposure to Fairfax's print media businesses. In a separate entity, both Fairfax and ASX investors could benefit from a valuation uplift. It definitely makes sense from Fairfax's perspective.
In my opinion, it would be wise to wait-and-see how the Domain merger is undertaken before committing to buy shares in either company.
