An excellent year from Nine Entertainment in FY22, but the encore is looking slightly less glamourous.
FY22 EBITDA of $700.7 million was 24% up on last year and above guidance. The strong growth was ubiquitous across the business with Publishing springing a 53% increase to $179.5 million. Core FTA TV increased 14% to $285.4 million.
Subscriber growth at Stan added 100k or 6% to the base although growth was essentially flat in 2H22. Stan revenue grew 22% driven by a strong uplift in ARPU thanks to Stan Sport. The new Sony output deal and an increase in Original productions is adding to content costs, but NEC says Stan EBITDA can still grow. Stan has now established a strong brand and a large customer base which will be important as the content landscape changes. There is plenty of room for greater penetration and ARPU uplift to support long term growth for Stan.
NEC is a multi-platform content business with 20 million signed-in users. Major changes in digital advertising markets due to changes in privacy settings makes NEC’s first party data assets increasingly valuable to advertisers. This is a long term theme to watch.
We argued for a share buyback at the interim result in February and the company has duly obliged.
Investment view
We had anticipated a buyback, but the increased dividend was an extra vote of confidence from the Board. The net dividend yield now sits comfortably above 6% and with a PE ratio sailing perilously close to single digits, the market is still not ascribing fair value to the stock.
The balance sheet remains conservative and leaves room for further capital management.
The trading update was generally positive for 1Q23f, but visibility becomes limited into 2H23f as the economic backdrop carries risks. Within that, we think the TV advertising market will pull back by about -7% just as TV costs are rising 7% in FY23f. Consensus forecasts see a flat earnings outcome in FY23f, but this may be optimistic.
The structural turning point for television continues as traditional TV fades and the rise of BVOD begins to offset this change. The growth in 9Now and BVOD is helped by improved audience measurement leading to higher yield and is even attracting new advertisers. BVOD is still only 12% of the total digital advertising market so the scope for growth is large. NEC has previously said BVOD revenue could grow at 30% pa over the next five years.
There is substantial long term value in this business that is not reflected In the share price.
Risks to investment view
Advertising spend could fail to continue its strong growth, or digital subscription and audience growth might slow down if consumer confidence and spending fell.
Recommendation
We have retained our Buy recommendation.
Figure 1: FY22 result
