Analysts see 2021 as a year of growth in Australia's media sector, as local players are lifted higher by improving consumer confidence.
The rise is helped by the continuing move to digital from print, from increasing ad spend on free to air television, a firm grip on costs and a return to the main game by advertisers following the 2020 pandemic year.
Among the companies benefiting from favourable economic tailwinds are News Corp and Nine Entertainment (due to post its half year results next week).
They are joined by Seven West Media which this week reported strong results for the first half, including taking a large axe to debt, a move applauded by market analysts.
All three will have their revenues boosted by payments from Google. News Corp has an agreement and so does Seven West. Nine is expected to follow shortly.
News CEO Robert Thomson says the agreement will have “a positive impact on journalism around the globe as we have firmly established that there should be a premium for premium journalism".
Other ASX-listed media companies, including outdoor media specialist oOh!media and radio-heavy HT&E (both releasing their latest results next week), will also benefit from improving economic conditions.
“We expect sustained ad-market growth, led by digital and TV,” say analysts at investment bank Goldman Sachs in a note to clients.
News Corp, with an increasing focus and earnings from digital, has short and long term earnings potential. The company beat market expectations with its December quarter results.
Nine has television, now getting intense interest from media agencies as the market recovers, plus attractive digital assets in Stan and Domain. Analysts are impressed with Nine’s continuing shift to digital revenue and its ability to pay a dividend in the face of the economic fallout from the pandemic.
Seven West Media’s share price has doubled since December. Nine and News Corp are both near 12 months highs.
Goldman Sachs says the recovery continues but challenges persist for traditional media.
“Australian advertising spending bounced back strongly in late 2020, returning to growth in November (+8%) delivering +5% growth in the 4th quarter of the year - a strong turnaround from the COVID-impacted trough,” the analysts say.
“We expect this ad market recovery will continue across 2021, supported by our constructive macro outlook.
“However, we expect media market trends will remain divergent, with the recovery being led by digital and television markets.”
TV’s recovery is forecast to continue up to the September quarter before revenue headwinds re-emerge and structural market declines continue.
“We expect this recovery, combined with ongoing cost discipline, to support strong earnings growth this year,” says Goldman Sachs.
Sports rights, including the dispute between Cricket Australia and Seven West Media, will continue in the headlines.
SVOD and BVOD platforms will continue to be key earnings and value drives for the sector in 2021.
“Stan and 9Now are crucial for NEC (Nine) to achieve its 60% digital earnings targets by FY24, with Stan Sports likely to be a meaningful delta,” say the Goldman Sachs analysts.
Analysts at Macquarie forecast Nine to have a strongmarket share in the half year to June, given its content leadership and the Australian Open.
Macquarie forecasts forecasts the metro free to air TV advertising market to growth at 20% plus in the six months to June this year. This would bring the financial year ad market to 94% of pre-COVID levels, using the 2019 financial year as a reference point.
Analysts expect recovery to continue into the 2022 financial year, up 2.4% or more and flat in 2023 before reaching structural decline again (-2%).
For Foxtel, streaming platforms Binge and Kayo are critical to stabilising revenue.
According to News Corp’s latest results, Foxtel’s total subscribers for last year was 2.95 million, up 3% compared to the prior year, with its sport platform Kayo driving much of the growth.
But while subscriber numbers are up, revenue is still catching up. In its 2019 fourth quarter results, News Corp reports Foxtel revenue down by US$61 million to US$501 million, or 11%, compared to the same three months last year.
Overall, News Corp is beating the market. News Corp posted revenue in the December quarter of $US2.41 billion, down 3% on the same three months a year ago but ahead of analyst expectations.
The media company posted record digital advertising revenue and continued growth in digital subscriptions.
“The second quarter of fiscal 2021 was the most profitable quarter since the new News Corp was launched more than seven years ago, reflecting the ongoing digital transformation of the business,” says CEO Robert Thomson.
“We reported the largest profits for Dow Jones since the acquisition of the company in 2007, with Segment EBITDA increasing 43% and traffic across the Dow Jones digital network surging 48%.”
And shortly Foxtel’s Kayo and Nine’s Stan will be seeking subscribers for sport. Kayo has recently launched free content to accelerate subscriber growth.
Seven West Media is the one with surprises.
At this half year results announcement this week, the media company announced it had cut net debt by 17% to $329 million. The company reported a half year statutory net profit after income tax of $116.4 million on group revenue of $644.2 million, down almost 10%.
Underlying net profit after tax -- excluding significant items -- was $86.6 million, an increase of 26.5% on the same six months the year before.
Not long ago, the company had a bigger debt pile than it had market capitalisation. Since then, CEO James Warburton has cut costs 17.5% to $493.7 million and net debt is down by a total 42% to $329 million.
Now the market capitalisation is $722.9 million. And Seven West has more assets to sell -- including Seven Studio and stakes in Airtasker, SocietyOne and HealthEngine -- which could be used to pay down debt further.
Investment bank UBS has Seven West Media on a buy recommendation.
Brian Han, senior equities analyst at Morningstar: "The better than expected progress in balance sheet repair has vaporised our key concern regarding the group's financial position.”
He says Seven's cost structure has been right-sized just in time to enjoy the operating leverage from a likely improvement in its free-to-air TV advertising revenue share.
Morningstar forecasts 38.2% this financial year from 37.4% last year.
Han says audience share is rising solidly on the back of new programming with tentpole programs drawing in 75% more audience. Revenue share growth should follow.
“The swifter-than-expected ratings turnaround vindicates management's content strategy refresh, to one focused on externally sourced tentpole franchises,” says Han.
“The confluence of these developments has rid Seven of the ‘distressed seller’ tag as it continues its asset sales.”
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