42% in a month: Seven West (ASX:SWM) share price just hit 3-year highs

A wave of momentum is behind the free-to-air TV giant resulting in a number of positive catalysts.

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Shares in national media company Seven West Media Ltd (ASX: SWM) have soared to new heights today and are now trading at 58.5 cents apiece.

The free-to-air TV giant’s share price is now back on the podium by setting a corresponding 3-year high, after rallying 42% in the last month.

With Seven West shares inching higher in afternoon trade today, they have also outpaced the benchmark S&P/ASX 200 Index (ASX: XJO) which is 1.25% in the red.

Here’s a closer look at what has investors chasing a position in Seven West.

New multi-year highs are a good thing

Seven West’s share price shot up in an almost vertical fashion to finish the month of October, after a series of positive catalysts – positive due to the market’s reaction.

First, the company informed investors that it folded all of its debt instruments into one facility last month.

Seven notes the move will result in immediate benefits to its balance sheet and earnings potential. These include more favourable interest payments and flexibility to retain more cash each earnings cycle.

As a result, the company sees its net debt reduce by $158 million or 57% on a net debt ratio of 0.95x, per the release.

One way for a company to drive growth is through acquisitions. Seven certainly followed this manta when it announced the acquisition of Prime Media Group Limited (ASX: PRT) to kick it off for November.

Seven acquired Prime Television and all of its subsidiaries on a valuation of $131.9 million, equalling 36 cents per Prime share.

As Seven will absorb all of the cash and distributions on Prime’s balance sheet, the net cost for the company in the transaction finalises at just $72 million.

The net result of both announcements sent Seven West shares flying in the days afterwards, and the pace hasn’t slowed down since.

After a small hiccup last week, they took off once again, after Seven released its AGM on Tuesday. There, it advised that the group has assumed position as the dominant free-to-air TV network in Australia.

Shareholders must now be fist-pumping in Rocky-like fashion celebrating the multi-year highs.

What are brokers saying about Seven West shares?

Following the commentary at its AGM, analysts from Swiss investment bank UBS weren’t so sure if Seven’s results are truly organic or not.

UBS questions if Seven did actually outperform its peers, or was simply the beneficiary of a buoyant TV ad market.

It is waiting on media competitor Nine Entertainment Co Holdings Ltd (ASX: NEC) to make commentary before making up its mind.

Yet, despite the reservations, the broker retained its buy rating on the share, reiterating its 95 cents price target in the process.

JP Morgan is also bullish on the direction of Seven West’s share price. It reckons the Prime acquisition “places [Seven] in a better position to deliver a consolidated national media partnership, with more data across a faster growing market”.

It notes the acquisition has the potential to bring an accretive gain of $5 million to $10 million to Seven through various cost and revenue synergies.

The broker also reckons that structural headwinds from “continued migration of advertising spend away from the company’s core TV broadcasting and print businesses to other digital platforms” are already priced into the Seven West share price.

As such, JP Morgan raised its price target on Seven West shares by 8% to 70 cents neat, implying an upside potential of almost 20% at last check.

What about in the last year?

The Seven West share price has been an outperformer over the past 12 months, delivering outsized returns to shareholders.

In that time, it has climbed over 178%, after rallying another 77% since January 1. It has gained 11% in the last week alone.

Each of these returns has outpaced the broad index’s gain of around 14% for the past year of trading.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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