Shares in HT&E Ltd (ASX: HT1) are down more than 30% in the last year. Investors can now buy a great media company on the cheap.
As it happens, I doubt that many investors will even have heard of HT&E Ltd. It stands for Here, There, and Everywhere.
It was formed earlier this year following the demerger of APN News and Media's New Zealand assets, the purchase of the remaining 50% of Adshel, and the acquisition of Digital Consonant.
HT&E now consists of a portfolio of radio, outdoor and digital assets. The best business is probably the outdoor advertising business Adshel. It enjoyed a 14% increase in sales to $105m and a 23% increase in EBITDA to $22.2m in the first half of 2017/18. It's a clear market leader and, as such, I expect these margins to be defensible. It's also successfully adapted its display to allow for digital content.
It is true that the loss of the Yarra Trams contract by Adshel in early October has led to a $15m EBITDA reduction in group forecasts. However, there is every reason to believe that Adshel will be able to replace this work, especially as it now has an extra $20m of capital to deploy into the new business.
The other major division is Radio. HT&E owns trophy stations like KIIS, WSFM, and Gold. Radio has proven a remarkably resilient platform over the years, despite so many technological threats. Yes, audience numbers between rival stations can fluctuate, and in HT&E's case this has led to a 6% fall in its revenues in the first half of 2017/18. But it's still a highly profitable, high margin business, generating $31m EBIT for HT&E on sales of $105m in the first half.
Allowing for lower second half earnings, HT&E now trades on a multiple of around 15x with a well covered 3%+ yield. In my view this underrates the quality of the group's franchises, and the expectation of improved profits in 2018/19.
Foolish takeaway
The mid tier end of the media sector tends to get overlooked, as investors focus on the continued decline of print publishing and free to air television. That has left strong companies like HT&E, Southern Cross Media Group Limited (ASX: SXL) and WPP Aunz Ltd (ASX:WPP) that have defensive market positions. I think that investors should carefully re-appraise all these stocks in 2018.
