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Is the Southern Cross Media share price cheap right now?

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It’s fair to say 2020 has not been a good year for the Southern Cross Media Group Ltd (ASX: SXL) share price. The Aussie media company’s value slumped 5.7% lower yesterday and is now down 80% in 2020.

What does Southern Cross Media actually do?

Southern Cross Media Group is a media provider in the communications services sector on the ASX. The group is one of Australia’s major media companies, as the parent company of Southern Cross Austereo.

The group owns and engages in the broadcasting of content on free to air commercial radio (AM, FM and digital), TV and online media platforms across Australia. Southern Cross (formerly Macquarie Media Group) is responsible for brands including 2Day FM, Triple M and the Hit Network.

Despite Southern Cross Media shares slumping in 2020, the company still boasts a market capitalisation of $436 million. That still keeps the Aussie media company within the S&P/ASX 200 Index (ASX: XJO) as of S&P’s latest June rebalancing.

What do the numbers say?

Clearly, shares in Southern Cross have been smashed this year. But they’re far from the only ones with media being one of the hardest-hit sectors alongside travel and hospitality. The likes of oOh!Media Ltd (ASX: OML) and Seven West Media Ltd (ASX: SWM) have also been smashed in the coronavirus-triggered sell-off.

As a result of the recent bear market, Southern Cross Media shares currently trade at a price-to-earnings (P/E) ratio of just 3.7. That means for every $3.70 paid for the share, investors would expect to receive $1 worth of earnings. That’s a great ratio, but also potentially misleading given the lagging nature of the ratio. If you still think you can rely on that number, take a look at Southern Cross’ dividend yield.

The Aussie media share is currently paying investors a whopping 40.4% trailing dividend yield. Of course, with minimal earnings this year, I’d be more than surprised if there is any dividend in 2020.

Given the company’s dividend yield and P/E aren’t that informative, I’d look to its most recent trading update on 6 May. Encouragingly, Southern Cross reported positive earnings before interest, tax, depreciation and amortisation (EBITDA) in April. That came as revenue declines were offset by cuts to operating expenses.

The group’s net debt sat at $161.8 million as at 4 May, inclusive of the company’s $169 million equity raising announced on the same day.

Is the Southern Cross Media share price cheap?

Despite what the numbers say, I’m not sure if the Southern Cross Media share price is cheap right now. No investors want to be ‘trying to catch a falling knife’, particularly given so much uncertainty.

So much has changed in the last 6 months, so at a minimum, I’d be waiting for the August earnings season before investing in Southern Cross. That should give a better idea of earnings potential and management’s outlook for FY21. With government stimulus like JobKeeper set to fall away in September/October, it could be a volatile period for Southern Cross Media shares.

However, where there is risk there could be a reward. As the great Warren Buffett says, “Be fearful when others are greedy and greedy when others are fearful“. However, I personally think the media industry outlook is too uncertain to speculate on the company as a long-term buy right now. 

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended oOh!Media Ltd. 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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