Shares of Fairfax Media (ASX: FXJ) are down nearly 80% in the last ten years, while the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) has risen nearly 70% over the same period.
In a word: Ouch. What’s more, for the 2012 fiscal year, the company posted a loss of $2.7 billion (partly due to write-downs in the value of its business), versus a profit of $125 million in 2003. The company’s dividend has shrunk massively over this period as well.
Value trap or simply hard to value?
Looking at the company today, investors may be tempted to call this a value trap. After all, the company’s primary business — respected newspapers such as The Sydney Morning Herald and The Age — might be called a relic from an earlier era.
And yet this isn’t the whole picture. The company is currently planning to restructure itself for the digital age, and instituting cost-cutting measures to keep it competitive. Some of its flagship publications are now being published in a smaller tabloid format, for instance.
The company’s web-based real-estate property, Domain, will be a stand-alone division, while the new ‘digital ventures’ division will count Stayz and dating site RSVP as segments. Fairfax will begin reporting across these new divisions in the first half of its 2014 financial year. A briefing in June of this year should provide insight ahead of the new reporting, however.
The question for investors is whether they’re willing to take the risk on an unprofitable but highly visible and widely respected business today, or wait to see if the new digital push pays off, by which point the share price may have risen substantially. When Credit Suisse analysts recently assigned a potential value to shares, the range of outcomes proved very wide indeed — from 21 cents at the low end to 86 cents at the high end.
A risky bet at best?
Today, Fairfax shares look like a risky bet at best, and investors may want to look elsewhere for more solid opportunities.
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