Media encompasses quite a variety of businesses that investors know of directly – newspapers, TV, magazines. It also covers digital entertainment, with online portals and mobile content providers.
Looking over companies in the media industry, STW Communications Group Ltd. (ASX: SGN) stands out for the following five reasons.
Creative ability drives market attention and business
Different from the regular free-to-air broadcasting companies like Nine Entertainment Co Holdings Ltd (ASX: NEC), Ten Network Holdings Ltd (ASX: TEN) and Seven West Media Ltd (ASX: SWM), the company is an advertising and PR business standing between advertising sponsors and broadcaster/publishers.
As broadcasters are having to adapt to more competition for the eyes of pay-TV viewers and online content, ad-developers and marketers can cater to all of them. Creative style and experience makes more attractive content for viewers, which can drive traffic to its customers.
Earnings growth and shareholder return
From 2009 onward it had steady growth in both revenue and earnings. Total shareholder return over the past five years was 28.5%, the third best amongst the 10 biggest media companies. It’s currently offering a 5.56% dividend and its share price is up 19.5% over the past 12 months.
Financial strength and value stock measures
The company is adequately leveraged, with long-term debt only 2.4 times more than NPAT, so borrowings are not weighing it down and shareholder equity has climbed over the past 10 years.
Taking a look at how much of a bargain or premium the current share price is, I like to use a measure of EPS growth + dividend versus the PE ratio, to see if the potential return is good for my money.
The past three years’ average annual EPS growth was 12.9 percent, so adding that to the current 5.56% dividend yield, we get 18.46. Dividing that by its 12.2 PE, we get 1.51, indicating that the stock would be considered in a “good value” range of over 1.5. So, we’re not paying any exorbitant premium for its growth.
Expanding into South-East Asia via Singapore
As traditional media companies are translating their advertising and promotional experience into digital and mobile content, the company sees the business potential of operating in the highly-populated South-East Asia region, and is setting up and growing a local business based in Singapore.
It is developing a regional digital-advertising network called Edge Asia, and international companies such as HSBC, Diageo and Unilever are already its key clients. It is projecting $25 million in revenue and $6 million in EBITDA in 2013 for this regional business.
ASX Index listing
The company’s addition to the S&P ASX 200 Index (ASX: ^XJO) in September will allow institutional investors, which may have restrictions on buying stocks not in the index, to consider building up positions in the company.
There may be bigger media companies but STW Communications Group has good growth prospects at a reasonable price.
I will want to see how it grows its South-East Asian business, which is a very competitive region to start with. Australian innovation and creativity can be the next great export, so let’s see how this company proves it.