Ten Network Holdings (ASX: TEN) released year-end financial results last week, and unsuprisingly, they were not an impressive set of numbers. Ten has long been the whipping boy of the media sector with its share price remaining a fraction of the lofty highs of $3.40 reached back in early 2005.
However, the balance sheet is arguably in better shape with net debt being paid down from $235 million to a manageable $28 million. Ten has over $250 million of vitally important cash and receivables that can be used to chase top television talent, new programs and rights to live sport to lift its dwindling share of the advertising market, which has fallen below 20%.
The headline loss figure of $281 million is enough to have investors walk out the door and never look back. But looking a little deeper, that loss is primarily the result of a $292 million impairment charge for its television licence. With new CEO Hamish McLennan taking control earlier in the year, it wouldn't be the first time a new CEO has wanted to clear the decks and take any impending hits in one swift swoop.
Ten's market capitalisation has fallen to $700 million; in contrast Nine Entertainment is expected to re-list on the ASX with a market capitalisation of approximately $2.5 billion. Even with its advertising market share falling below 20% Ten looks appealing on a like-for-like basis.
Giving significantly more confidence to an all or nothing investment like Ten Network is the fact that Ten secured a $200 million debt facility with no restrictive banking covenants attached. This was only possible thanks to significant shareholders Bruce Gordon, Lachlan Murdoch and James Packer guaranteeing this loan.
Ten operates through channel 10, 11 and 1 HD and is now leading the online push from free-to-air television providers with its online platform TENplay. While 2013 has seen some rating successes, it will need to continue to invest wisely in new programs. Ten has started to demonstrate this through the revamp of its news programs (EYE Witness News) and live sport. It has secured rights to the domestic T20 cricket series, upcoming Commonwealth Games and the Winter Olympics.
The fall in the share price will be hard to reverse in the short to medium term with large fund managers looking for consistent performers who are paying a dividend. Clearly this is not Ten, however there appears to be hope that Ten can reclaim the ground it has lost. If Ten is able to win back market share through new programs and live sporting options for viewers then the share price could quickly jump as fund managers flock back to this fallen star.
The question that needs to be asked by any risk tolerant investor is, does free-to-air television have a future? While digital advertising is growing rapidly, it is doing so from a low base while the established $3.5 billion free-to-air television advertising market is still growing, albeit at a slow rate. I may be a fool, but I am not adverse to following in the footsteps of the Murdochs and Packers.
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Motley Fool contributor Tim Roberts owns shares in Ten Network.