Waiting for the worm
RESULTS ANALYSIS
Need To Know
- Weak TV market but Nine takes market share.
- NEC has kept costs under control.
- Cheap valuation and good yield keeps us at Buy.
Investment Implications
FY23 results overview (vs consensus):
EBITDA $591m vs $595m
Net profit $262m vs $262m
Full year dividend 11cps cf 14cps FY22
FY23 EBITDA fell -23% primarily due to a -20% fall in Total TV EBITDA and a -16% fall in Domain EBITDA. Net profit fell -25% compared to last year and EPS was -23% including the buyback.
Nine’s linear TV revenue fell -4% but market share of over 40% (38% in FY22) helped to offset the -11% fall in the TV market. 2H23 linear TV revenue fell -10.5% compared to the market fall of -15.3%. The TV cost base grew 7% in-line with company guidance.
9Now revenue grew 16% in FY23 with growth well ahead of the BVOD market at 6% growth.
Stan’s subscriber base is ‘approaching’ 2.6m as revenue increased 12% driven by higher ARPU (price increases for Stan Sports). Stan EBITDA of $37m was 30% ahead of last year.
Publishing EBITDA was down -8% on lower revenue.
Domain’s EBITDA contribution was also down -15% on last year.
Outlook. NEC said the TV market remains weak (i.e down double digit) although, ever the optimists, the company said September was looking better. Guidance on costs was murky but we think it might be in the order of 1-2% in FY24.
Investment View
The soft economic environment has pinched the advertising market hard in FY23. Advertising is 91% of Broadcasting revenue and 63% of group revenue so NEC is still highly vulnerable to the cyclical swings in this factor. The only division it doesn’t affect is Stan.
NEC’s TV market share is at a 20-year high, but this counts for little when advertising is in a funk. It does give NEC an advantage when the cycle turns, however, as forward bookings will land on Nine’s table first given its audience leadership.
The uninterrupted growth in BVOD continues to highlight the necessity of diversifying away from traditional linear broadcasting. Stan has captured a material subscriber base in a competitive market and offers more earnings diversity.
The attractive dividend yield and ~12x FY24 PER keeps us at a Buy recommendation.
Stock Overview
Share Price
Company Overview
NEC is an Australian media company offering news, sports, lifestyle, and entertainment brands through broadcasting, digital, publishing, real estate, and subscription video.
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