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Nine Entertainment shares take a tumble on COVID-19 update

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Nine Entertainment Co Holdings Ltd (ASX: NEC) shares are down more than 7% today after the ASX media company withdrew its FY20 profit guidance.

Shares in Nine Entertainment have more than halved from a high of $2 in January and are now trading at 94.5 cents at the time of writing. 

Impact of COVID-19 on Nine Entertainment operations

Previously, Nine Entertainment provided guidance to the market on 26 February advising Group earnings before interest, tax, depreciation and amortisation (EBITDA) in FY20 would be broadly similar to FY19. This guidance was premised on a defined set of advertising assumptions. Since then, the rapid progression of COVID-19 is beginning to have an impact on Nine’s markets. 

The short term impact remains limited to date, with Nine Entertainment’s March quarter revenues tracking close to flat and overall results for the quarter broadly in line with company expectations. Nonetheless, Nine Entertainment  reports that the forward ad market is becoming increasingly difficult to predict. It is as a result of this uncertainty that Nine Entertainment considered it prudent to withdraw its FY20 guidance. 

Despite the uncertainty in the advertising market, Nine Entertainment’s audiences across all key businesses continue to perform well. The company remains focused on bringing forward cost efficiencies where possible, and reiterated its intention to pay the 5 cent per share fully franked interim dividend previously declared. 

Previous financial results

In its half-year results released at the end of last month, Nine Entertainment reported revenue of $1.2 billion, with almost 40% of earnings sourced from its digital platforms. EBITDA was $251 million, and net profit after tax (NPAT) was $114 million. 

The company reported strong growth in the digital video business, including a $35 million EBITDA improvement at Stan, with subscribers now exceeding 1.8 million. EBITDA at 9Now grew 65%, with a market-leading broadcast video on demand share of around 50%. 

Results were, however, impacted by challenging cycles with broad-based ad market weakness including a 7% decline in metro free to air revenues. Housing market softness also impacted the residential listing volumes of Domain Holdings Australia Ltd (ASX: DHG). Nine Entertainment is seeking to refocus the cost structure of its free to air business, targeting the removal of up to $100 million in annualised costs over the next three years. 

In late January, Nine Entertainment completed the refinancing of its corporate debt facilities. The new facilities consist of three and four year revolving cash advance facilities of $545 million and a one year working capital facility. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Nine Entertainment Co. Holdings Limited. 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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