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Should you buy shares in Fairfax Media Limited at this price?

The Fairfax Media Limited (ASX: FXJ) is up slightly in trading today to $1.09, but over the past six months is up a whopping 35.6%.

Fairfax is the owner and publisher of The Age, The Sydney Morning Herald, The Australian Financial Review and countless other newspapers and publishing assets – not to mention it’s most valuable asset, property portal Domain.

As everyone knows, physical newspapers have been in decline for many years and circulation is still declining. So why is a structurally challenged business seeing its share price soar?

For one, Fairfax have announced that it will hive off the Domain business into a separate entity listed on the ASX. Given the market cap of rival REA Group Ltd (ASX: REA) – the owner of realestate.com.au – is $8.4 billion, investors are likely hopeful that Domain can achieve a similar valuation. When the whole of Fairfax Media has a market cap of $2.5 billion, you can see that investors expect to realise a lot of value when Domain is its own listed entity.

Fairfax is also confident that the company is working towards a sustainable publishing model, which should see the remaining assets be worth at least something, despite declining circulation for its physical newspapers. However, the media company still seems to face some major issues. Yesterday, Fairfax announced 125 job cuts from its newsrooms as part of a plan to save the company $30 million in annual expenses.

Once 30%-40% of Domain is divested, Fairfax’s remaining assets including its metro and regional newspapers, a 50% share in subscription video on demand service, Stan, a private weather service Weatherzone, and a 54.5% stake in ASX-listed radio company Macquarie Media Ltd (ASX: MRN).

Its New Zealand media business was trying to merge with NZME, but that has been blocked by New Zealand regulators, so who knows where Fairfax goes with that now. There’s also a Digital Ventures business and several smaller businesses including dating website RSVP, Drive – a new car buyer portal and an events business.

Foolish takeaway

It’s not hard to see why the Fairfax share price has soared recently. With plenty of value to be realised from Domain and what appears to be sustainable publishing and digital businesses, Fairfax shares may be cheap at these prices.

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Motley Fool contributor Mike King has no position in any stocks mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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