Seven West Media Ltd (ASX: SWM) has seen its share price gain 6.5% in late afternoon trade, after the commercial TV broadcaster announced a $75 million on-market share buy-back.
The company says it will buy back shares over the next 12 months, with CEO and Managing Director Tim Worner saying,
“We have seen volatile trading in Seven West Media shares and are of the view that this company is extremely well-placed to build on its leadership. The on-market buy-back at attractive levels will create value for the remaining shareholders.”
Buy-backs have the effect of reducing the number of shares on issue, but with a market cap of roughly $1.2 billion, Seven West are buying back around 6% of the shares on issue. That will give earnings per share a lift in the next financial year or so.
Unfortunately for existing shareholders, many are predicting the death of commercial TV broadcasters, with internet TV and subscription video on demand (SVOD) taking over. This is an industry in decline – as Seven West’s results showed last month.
The company said it was expecting low single-digit growth in television advertising revenues over the 2016 financial year (FY16), exactly what the company predicted last year, and TV advertising revenues fell 1.6%. Next year’s forecast appears more hope than anything else. Overall, the company expects earnings to fall another 5-10% in FY16.
Seven West’s newspaper and magazine advertising revenues also continue to fall, down 13.3% and 4.9%, so there’s no joy there either.
Perhaps the only bright note was the election of Malcolm Turnbull as leader of the Liberal Party yesterday and his more open views on relaxing media ownership laws in Australia. That could allow Seven West to merge or takeover Prime Media Group Limited (ASX: PRT) – which takes Seven’s TV broadcasts into regional areas.
As my colleague Ryan Newman wrote back in June 2016, free-to-air television faces structural headwinds the industry may not be able to recover from. Seven West is highly likely to get the chance to buy its own shares at much cheaper prices.
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Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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