MENU

Seven vs. Nine vs. Ten: Which TV network should you own?

Last week saw the re-listing of the Nine Network via the initial public offering (IPO) of shares in Nine Entertainment (ASX: NEC). Nine Entertainment houses not just the Nine Network television division but also the Nine Events division (which includes Ticketek) and the Nine Digital division.

For investors, the return of Nine to the ASX offers an opportunity not only to potentially invest in a business which has undergone restructuring while in the hands of its private equity owners but also an opportunity to compare the financials of the business with those of its two free-to-air peers.

After a book build that saw the Nine IPO priced at the bottom end of the indicative price range at $2.05 per share (the shares are now trading at $2), Nine had an implied market capitalisation of $1.9 billion and a price to forecast pro-forma net profit after tax (PE) multiple of 13.8 times.

In comparison, Seven West Media (ASX: SWM) which owns the Seven Network, the Yahoo!7 internet platform, newspaper mastheads and a number of radio stations, is forecast (according to research by Morningstar) to report a decline in earnings per share from 23.8 cents per share (cps) to 22.4 cps. At yesterday’s closing price of $2.13 that implies a PE multiple of 8.9 times.

Ten Network (ASX: TEN) is the most ‘pure-play’ television company of the three listed firms. Its lacklustre ratings performance has made life tough for the network, resulting in Morningstar forecasting a loss for the current financial year. Things are expected to turn around in the 2015 financial year with a forecast 0.8 cps profit. With the shares currently selling at 27 cents, this implies a PE multiple for the 2015 year of 31.3 times.

Foolish takeaway

On the face of it the PE metric would suggest that Seven West Media is the most appealing investment proposition, with Nine’s stock trading closer to the market average. However the possibility of a rebound in earnings at Ten Network potentially makes the laggard’s stock the most undervalued, although the earnings rebound is far from certain. Importantly, evaluation of each television company must be overlaid with consideration of the potential for structural decline within the television sector.

Tune in for more!

Discover The Motley Fool's favourite income idea for 2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock
for 2014
."

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.