Nine Entertainment Co. Holdings Limited (NEC)
BUY

Poised, not paused

Sector: Communication Services

TRADING UPDATE

Need To Know

  • FY23 EBITDA guidance $590-600m, below consensus at $618m
  • Total TV revenue to be down very low single digits in FY23
  • NEC winning TV revenue share as metro FTA market fell -15% in 3Q23 

The advertising market remains very weak in Australia, but Nine Entertainment is best positioned for when the cycle turns. 

NEC’s trading update shows Total TV revenue (Nine and 9Now) will be down ‘very low single digits’ in FY23. The precursor to this is NEC’s very strong audience ratings performance. For the March quarter, NEC had 45.6% share of primary channel audience, well ahead of Seven, which translated into 45% of free-to-air television revenue share in the March quarter and 56% share of BVOD revenue.

This was in the context of a (metro TV) market which fell -15% in 3Q and NEC is expecting a similar outcome in 4Q23. About 6% of this fall is attributed to the 2022 federal election and there are no key events in the current period – the King’s coronation doesn’t cut it.

The ‘small’ decline in total TV revenue is enough to account for most of the slippage in EBITDA guidance.

NEC’s total television costs are still expected to increase in the low single digits in 2H23, resulting in cost growth of about 7% for FY23f, as per the February guidance.

A price increase in Stan, plus modest revenue increases in radio and publishing is positive news in a highly competitive market for subscribers and readers. 

Domain’s March quarter revenue was down -4% and with FY23 costs expected to be at the high end of guidance, FY23 EBITDA may be down mid-single digits on FY22.

Investment View

The increasing importance of growth in BVOD is the key to the transition in broadcast market earnings for NEC. So far, the growth trajectory provides ample confidence that BVOD can offset the structural decline in linear TV. The yields in BVOD are significantly higher than linear TV so the revenue transition is not one for one.

Stan subscribers could reach 2.5m this year and with a price increase already taken, this business keeps performing in a very competitive market.

The publishing business is quietly building its subscription and digital revenue and is underappreciated by the market, in our view.

NEC’s balance sheet is strong, the buyback is on-going, and a 5.6% net dividend yield remains attractive. The key catalyst for the share price is return of more buoyant advertising conditions. 

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Stock Overview

Share Price

Company Overview

Nine Entertainment is a media company encompassing television, radio, newspapers, and an array of digital broadcasting assets. It has a 60% stake in Domain Holdings.

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