I'm very intrigued when a top performing manager thinks a share is a buy when everything else seems to suggest otherwise.
Nine Entertainment Co Holdings Ltd (ASX: NEC) is one Australia's TV networks. It runs the TV stations Nine, Gem, Go and Life.
One of the easiest trends to identify is the steady decline of TV networks. There are several reasons why this is happening, it boils down to the fact that less people are watching entertainment through traditional TV.
Running season after season of the same reality show is only going to draw the same fans back. The audience can only watch fake drama for so long.
YouTube, Netflix, iTunes and other online providers are all stealing eyes from the TV networks.
Google, Facebook and other media are taking advertising dollars away from Nine and its peers.
In FY17 Nine reported that revenue was down 3%, the dividend was down 21% and statutory earnings per share went from 36.9 cents to minus 23.4 cents.
With all that in mind, it was very interesting learning that WAM Capital Limited (ASX: WAM) has invested in Nine shares. The investment team don't think Nine is going to turn its long-term future around, but these upcoming positives could see a quick boost to the share price:
- Winning the ratings war. Nine hasn't been on top of the ratings tree for a long time, yet its top shows seem to be finally winning the ratings war. The Block, Married at First Sight and Australian Ninja Warrior have all been winners this year.
- The Ashes. It's been a few years since The Ashes were in Australia, which gives Nine the opportunity to get a good source of viewers for a month that it hasn't had in the last few years.
- More advertising dollars. Attracting all these extra viewers allows Nine to appeal to advertisers for more advertising dollars next time the negotiations occur.
Foolish takeaway
Nine is trading at 11x FY17's underlying earnings. The share price has already grown by 51% since the start of the year, I will be interested to see how much further the share price can grow from here. It's the ability to pick an unpopular share at a good price, and then sell at the right time when it's grown in value, which has allowed WAM Capital to create market-beating returns year after year.
