Ask most investors what they think about Fairfax Media Limited (ASX: FXJ) and they'll likely tell you it's structurally challenged and should be avoided at all costs. They probably would also be under the impression that the shares are languishing.
In a way this view is of course right. The old world newspaper firm has been forced to undergo massive changes to adjust to the online world and its profits have suffered. Likewise over the past decade the share price has fallen 74%.
However the more recent performance of Fairfax tells a different story. The stock is up 60% in the past 12 months, massively outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) which is up just 6.5%. Likewise today's release of the media company's half-yearly results shows an increase of 48.5% in underlying profit and a fully franked 2 cents dividend has been declared.
Highlights from the half included the company swinging from a net debt to a net cash position thanks to the sale of the Stayz business. The Metropolitan Media division boosted earnings by 52% helped along by the closure of poorly performing products and strategic portfolio repositioning. There was also a strong contribution from Domain which boosted its earnings by 50%.
Foolish takeaway
Fairfax has been a classic contrarian value play. Management has successfully delivered a significant cost-saving program which currently has an annualised savings rate of $260 million. For investors who missed the bottom and are wondering whether it is too late to ride the stock price higher the key question to answer is whether Fairfax can now meaningfully grow revenues, or if the battle to reduce costs on a declining revenue base will continue.
