The Motley Fool

Fairfax is no screaming buy

I’m one of the few people to make money from Fairfax Media (ASX: FXJ) in recent years. Not as an investor, mind you, but as a contractor for 16 years. Not being on the payroll meant I didn’t partake of the employee share plan. What a lucky break, huh?

That’s because, unlike my colleagues who unfortunately got those shares, I didn’t have to watch their value gradually whittled away over the years. The media giant’s newspapers and, more lately radio stations, have reported some tragic events, but the state of the company is a pretty sad story in itself.

With its iconic mastheads The Sydney Morning Herald, The Age and The Australian Financial Review, most of us know at least a bit about Fairfax. What made the metropolitan mastheads enjoy such a golden era for so long was their proverbial “rivers of gold” — the massive revenue that flowed into the company’s coffers from their fat classified advertising, overshadowing income from display advertising and newspaper sales and — dare I say it? — supporting such an admirable investment in quality journalism.

Not only are those days well and truly gone, thanks to the company completely missing the boat on the next great thing, online/digital publishing. Fairfax came to the party too late and was beaten by start-ups that at the time knew less about media.

How much you can blame the management, probably particularly under the stewardship of 1998-2005 chief executive officer Fred Hilmer, is now immaterial. The company’s share price may have peaked at $5.79 under his early leadership, and revived a bit after he left, but after hanging around the $4.50 mark for a year from late 2006 it has been all downhill from there. So downhill, in fact, that it was languishing at an all-time low of $0.35 in October last year.

Like the pages of a newspaper from the last century, that’s all history. What’s important now is, can the $1.15 billion ship still be turned around? The market doesn’t seem to think so. From $0.67 just a few weeks ago, it managed an intraday low of $0.455 before the end of the financial year.

So Tuesday’s 5.1% lift — double the market — might look good on paper, but it’s coming off a very low base. And perhaps it was buoyed by hopeful expectations for the digital subscriptions for The Sydney Morning Herald and The Age mobile, website and tablet apps launched the same day.

The stock may be offering a 4.9 per cent dividend yield, but the June 6 investor presentation seemed to have little to inspire the share price, reporting current revenues down, as expected, by 9-10%. The pdf of the presentation looks great, but Fairfax has been promising for a long time. We’ve heard a lot about cost savings — like CEO Greg Hywood’s comment that “ongoing cost management is now in our DNA”. What was it doing before, spending for the sake of it? And what about actually making some new revenue?

On that point there were a couple of bright spots: increased digital advertising revenue from the former Financial Review Group and growing revenue from the Stayz accommodation website. There will need to be a lot more across all divisions for Fairfax to look like the company it would like us to think it is.

Actually, come to think of it, I did make money as a Fairfax investor, too. In 2009, I got as many shares in the retail rights offer at $0.75 as I could. And, as I recall, I sold them soon after for $0.83. Then I looked for a market recovery and a good opportunity to offload the rest of my shares. To this day, I’m glad I did.

Foolish takeaway

It’s possible Fairfax could be a screaming buy again one day. Whether it will happen in our lifetimes is another matter.

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Motley Fool contributor Andrew Ballard does not own shares in Fairfax Media. 

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