A modestly brighter outlook was all it took to give embattled broadcaster Nine Entertainment Co Holdings Ltd (ASX: NEC) a much needed boost this morning even as management posted another drop in earnings.
The stock jumped 1.4% in early trade to $1.47 after Nine Entertainment unveiled an 8.5% drop in earnings per share to 15 cents but a 2.6% improvement in revenue to $1.61 billion for 2014-15.
The EPS was slightly below consensus expectations on Reuters of 15.31 cents, while sales were ahead of expectations of $1.59 billion.
The thing that pleased investors are comments from management that conditions may have bottomed for the group as it managed to increase market share in a declining free-to-air (FTA) television market with revenue from Metro FTA increasing 0.2 percentage points to 38.9% even as the market was down 1.5%.
It's been a tough few years for FTA advertising due to the online threat but Nine Entertainment's recent clinching of the National Rugby League (NRL) broadcast rights is described by management as being "transformational" for the group.
"Together with our expectation of improved affiliate terms, the expiring of loss-making international programming commitments, and our industry leading debt-free balance sheet, we are in a very strong position," said the group's chief executive David Gyngell.
Shareholders can also take heart from a big jump in earnings from Nine Entertainment's online assets, which recorded a 40.4% surge in earnings before interest, tax, depreciation and amortisation (EBITDA) to $21.9 million as revenue increased by a third to $163.4 million.
The digital division only accounts for less than 8% of group EBITDA and its now expired agreement with Microsoft's MSN website contributed around $4.7 million to the result.
Nine Digital's earnings will no longer be bolstered by Microsoft but management believes the division will still enjoy modest growth in the current financial year, thanks in part to its tight cost control.
Further, the group's television ratings performance has improved markedly since the start of July, although management is tempering expectations by saying that its ratings for 2015-16 could be slightly down on last year due to intense competition.
That may not necessarily imply a drop in FTA earnings as the group predicts that the overall market will grow modestly in this financial year.
The good news is that expectations are set low for Nine Entertainment with most analysts expecting next to no growth for 2015-16.
Improving market conditions, growth from its digital business and good cost control could give the group just enough firepower to come in ahead of the dour forecast.
Nine Entertainment has lost 27% of its value since it listed in late 2013 and is trading close to its record low of $1.365.
The stock looks attractive after its credible result as it is trading on an undemanding 2015-16 forecast price-earnings multiple of just under 10x with a trailing yield of around 6%, but it's only suited for investors with a higher tolerance for risk given the amount of uncertainty that continues to dog the FTA market.
