Earlier this month, the federal government put media reforms back on the agenda, when communications minister Malcolm Turnbull hinted he may remove media regulations that have outlived their useful lives.
That has led to speculation that major metropolitan commercial television networks would seek to take over their affiliated regional broadcasters. There are two major rules that are being looked at.
- The 75% reach rule – which limits commercial television licences exceeding 75% of the Australian population, and
- The 2 out of 3 rule – which prohibits ownership of more than two out of three of a television licence, radio licence and an associated newspaper in the same radio licence area.
That has put Macquarie Radio Network Limited (ASX: MRN), Prime Media Group Limited (ASX: PRT) and Southern Cross Media Group Ltd (ASX: SXL) firmly in the sights of the major networks such as Nine Entertainment Co Holdings (ASX: NEC) and Seven West Media Ltd (ASX: SWM).
For investors, Macquarie Radio, Prime Media and Southern Cross look fairly attractive on a P/E ratio basis as well as their dividend yields, suggesting investors have not yet jumped on board.
Macquarie Radio operates the number one rated talk station 2GB and easy listening 2CH. The company is currently trading on a P/E ratio of just 9.6, and paying a whopping fully franked dividend yield of 10%. Over the past five years, the company has delivered an average annual return to shareholders of 51% – which is nothing to sneeze at.
Prime Media broadcasts regional television in affiliation with Channel Seven. Net profit fell slightly in the last half, down 4%, but the company is still paying a fully franked dividend yield of around 7.4%, and trading on an undemanding P/E ratio of 10.9.
Southern Cross is the largest of the three, with a market cap of around $900 million. Its assets include radio stations Today Network – Australia's number one FM radio network, as well as Triple M. The broadcaster's regional TV network extends down the coast of Queensland, across NSW, much of Victoria, all of Tasmania and parts of South Australia as well as into Darwin. Southern Cross is currently trading on a P/E ratio of 9.3 and paying a fully franked dividend yield of 6.9%.
Foolish takeaway
Should the media rules be relaxed, these three companies are likely to be prime targets for larger media companies. Trading on undemanding earnings ratios and paying substantial dividends, there appears to be plenty of potential upside and very little downside for investors willing to have a punt.
