What: Nine Entertainment Co Holdings Ltd (ASX: NEC) shares surged 10% on Thursday morning following the announcement of first half net profit that met previous guidance and a $150 million share buyback over the next 12 months.
So What: Nine Entertainment operates and derives the majority of group revenue from the Nine Network free-to-air (FTA) stations. The group also owns Ticketek Australia, Allphones Arena, Nine Touring and Events, and has a digital business attempting to take advantage of the move to internet streaming of television and movies.
The highlights of the results were:
- Net Profit After Tax of $88.8m consistent with the guidance given at the 2014 AGM
- Group earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 9.4%, due primarily to weakness in the FTA advertising market
- Metro and Regional FTA advertising markets declined 3%
- Nine Network Metro FTA revenue share improved from 38.7% to 39.2%
- Closing Net Debt of $491m and conservative Net Leverage of 1.7X
- Interim dividend of 4.2 cents per share, unfranked
- On-market share buyback of up to $150m
EBITDA fell in all three segments on a 2% fall in group revenue. The most disappointing part of the result, in my view, is continued weakness in the Nine Network segment.
Local FTA television is currently dominated by Nine and Channel 7 owner Seven West Media Ltd (ASX: SWM), while Ten Network Holdings Limited (ASX: TEN) is a distant third. The concern is that all three companies are struggling with lower advertising revenue and dwindling viewer numbers.
What Now: The result slightly beat the forecast of local analysts but one must question the long-term sustainability of the company. Without any major growth prospects, a structural decrease in revenue, and serious competition in all segments, I can't see Nine outperforming over the long term.
The share buyback will likely put a floor under the share price for the next 6 to 12 months, but with earnings per share of 16 cents expected this financial year, it's questionable whether buying shares at 12x earnings really represents good value if long-term growth is questionable.
