Nine is expected to stand out from its peers when it releases its full year results next week with better prospects on the advertising market going into the 2020 financial year.
However, the media company, now filled out with the assets of the old Fairfax empire, faces a number of headwinds.
Macquarie Wealth analysts say Nine would have seen a softer finish to the 2019 financial year to the end of June with weaker advertising, fewer online property listings and slipping free-to-air (FTA) television.
FTA numbers for the June half were down 5.2% and radio slipped 2.1%.
“The TV ad market remains under pressure in 1H20, with key sectors still soft,” the analysts say.
Media players are feeling the pinch from a weaker advertising market. The year to date has been challenging with the SMI numbers showing agency ad spend down 1.4% to $6.93 billion for the 12 months to June, excluding government.
Feedback from media buyers suggests that any spend associated with the federal election over the period was more than offset by a pullback in advertising from key sectors, say analysts at Credit Suisse.
The Macquarie analysts see Nine’s EBITDA at $421 million in the year to June. This is in the lower range of Nine’s own earnings guidance in the $420 million to $430 million range. Macquarie expects revenue of $2.47 billion.
And Credit Suisse is forecasting total revenue of $2.44 billion for the year to June, with most of the growth from digital and metro media.
But the 2020 financial year is expected to be better for Nine despite a weak ad market and lower property listings. Macquarie expects Nine earnings to grow in 2020 to $494 million.
“Despite current weaker ad markets, Nine is well placed heading into FY20 given key segment growth drivers and the capture of (Nine-Fairfax) merger synergies,” the Macquarie analysts say.
“Key catalysts during the year ahead will revolve around FTA TV ad market health, the level of earnings rebound at Domain, and changes to industry structure and competition in the SVoD space for Stan.”
Macquarie has rated Nine as a Retain Outperform with a 12-month price target of $2.15. The shares closed yesterday at $1.895.
The analysts cite Domain, Stan and subscriptions for metropolitan newspapers as strong areas of the business.
The Australian Financial Review (AFR) has reportedly been doing well in growing paid digital susbcriptiions. Total cross-platform readership was estimated to be up by 15.8% to 1.587 million driven by a substantial increase in the AFR’s digital audience, up by 23.5% to 1.337 million.
Nine’s streaming media platform Stan is also well placed, and is expected to be earnings positive this financial year, but its outlook depends on a still evolving competitive landscape.
“Stan has been one of the more remarkable ‘start-ups’ on the Australian landscape in recent times,” the Macquarie analysts write in a note to clients.
Over less than five years it has accumulated an active base of 1.6 million subscribers, according to Macquarie estimates, and a recurring revenue base of close to $200 million.
“This puts it in a powerful position within the Australian SVoD market,” the analysts write.
“It is second to only Netflix for subscribers, and has more than 3x the subscribers of the number-three player in Foxtel Now.”
But Stan will face more aggressive competition from existing players and global content
owners.
Among them, Disney pursuing a direct-to-consumer offering and is expected to launch Disney+ in Australia.
Nine’s $114 million takeover of the 45% of radio broadcaster Macquarie Radio is a “sensible and attractive” use of shareholder's capital, according to analysts at Morgan Stanley.
The analysts see this as an effective “re-allocation” of some of the $146m proceeds from the sale of regional newspapers and events businesses.
Morgan Stanley has a price target for Nine of $2.30 a share and a rating of Overweight.
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