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Seven West Media share price could fall on weak half-year results

The Seven West Media Ltd (ASX: SWM) share price looks set to fall in early trade after the company announced it would not pay an interim dividend as underlying EBIT fell 4% year-on-year.

The company reported total revenue of $797.44 million for the half-year ended 29 December 2018, down 1.48% on its restated 1H18 numbers. Revenue from its Seven segment increased slightly to $628.5 million in 1H19 but declines in Pacific, The West and Other segments saw an overall marginal decline.

Positively, the group’s operating costs were flat for the half-year, but the company still reported an underlying net profit after tax (NPAT) 7.8% lower at $91.8 million for the half, down from $99.6 million in 1H18, while the statutory NPAT fell 13.9% in a challenging half for the group. EBITDA and EBIT were also down 8.8% and 7.9%, respectively on the prior corresponding period.

Seven West’s strategy has paid off in terms of ratings, being the number one ranked TV channel by ratings share, even if this hasn’t translated to profitability in 1H19.

Management reaffirmed financial targets for FY19 including underlying Group EBIT growth of 0-5%, reducing the company’s leverage ratio to below 2x at the end of FY19. The company reduced its net debt by 16.2% year-on-year in line with the above targets, while its current leverage ratio remains at 2.3x.

Seven Studios expected to deliver its seventh consecutive year of EBIT growth, after it was again a shining light for the company with segment revenue increasing 20.1% to $45.7 million.

Management decided not to pay an interim dividend in 1H19, as was the case in 1H18 as headwinds continue to build and growth slows for the media giant.

Foolish takeaway

In my view, this result is reflective of the challenging trading conditions facing Australian media companies at the moment. We’ve seen the Nine-Fairfax merger steal the headlines of late and consolidation can only become more likely as profitability declines and financial troubles persist, case in point being the Ten Network being placed in receivership in 2017.

The Seven West Media share price is down nearly 50% since August 2018 when it reported underwhelming half-year results. I don’t think there’s a heap of growth upside in the media sector at the moment and I’d be looking at the likes of Rhipe Limited (ASX: RHP) or Altium Limited (ASX: ALU) as potentially the next hot tech stock.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. 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 Scott Phillips.

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