Company Reports

Shares in Nine continue to languish, trading at half of our unchanged AUD 2.70 fair value estimate. While fiscal 2024 underlying EBITDA fell 12% to AUD 517 million, it exceeded our forecast by 9%, driven by upside surprises in TV and publishing. Management's outlook is understandably circumspect, given the stubborn advertising recession. However, the group's revenue fundamentals remain well poised to snap back on a recovery in advertiser sentiment.

Amid economic uncertainties, we are encouraged by Nine Entertainment's progress on factors within its control. The balance sheet is solid, and TV ratings, advertising market shares, and pricing are improving. Critically, management has fundamentally restructured the cost base.

Amid economic uncertainties, we are encouraged by Nine Entertainment's progress on factors within its control. The balance sheet is solid, and TV ratings, advertising market shares, and pricing are improving. Critically, management has fundamentally restructured the cost base.

Conditions are ripe for Nine to attract takeover interest. Its shares have been languishing since mid-2022, as the hangover from the covid-19 bump in advertising is exacerbated by the impact of rising rates and skittish marketer sentiment. This is compounded by recent internal upheavals, culminating in the resignation of chairman Peter Costello on June 9. The current flux makes Nine vulnerable to opportunistic buyers willing to look beyond the near-term headwinds and focus on Nine's underlying assets.

Amid economic uncertainties, we are impressed by Nine Entertainment's progress on factors within its control. The balance sheet is solid, and TV ratings, advertising market shares, and pricing are improving. Critically, management has fundamentally restructured the cost base.

Amid economic uncertainties, we are impressed by Nine Entertainment's progress on factors within its control. The balance sheet is solid, and TV ratings, advertising market shares, and pricing are improving. Critically, management has fundamentally restructured the cost base.

Advertising conditions in TV remain subdued, with September-quarter 2023 total market revenue down 8% year on year. Broadcast video on demand, or BVOD, revenue was up around 13%. But it was not enough to offset the 12% fall in metropolitan free-to-air advertising market, with regional likely not much better. Faced with this top-line headwind, TV operators are zeroing in on expenses.

Amid COVID-19 uncertainties, we are impressed by Nine Entertainment's progress on factors within its control. The balance sheet is solid, and TV ratings, advertising market shares, and pricing are improving. Critically, management has fundamentally restructured the cost base.

Mike Sneesby's appointment as Nine's new CEO ticks several boxes.

We lift our fair value estimate on Nine by 13%, or AUD 0.25 per share, to AUD 2.25. AUD 0.06 of the increase is due to Morningstar's recent fair value estimate upgrade on Domain to AUD 3.50 per share (from AUD 3.20) which we incorporate in our Nine intrinsic assessment for its 59.2% shareholding. The balance of the Nine fair value estimate lift reflects an average 12% step up in our underlying EBITDA forecasts.

Amid the COVID-19-induced uncertainty, we are encouraged by Nine's progress on factors within its control. The balance sheet is well-equipped, and advertising conditions are already improving from the dark days of COVID impact. Critically, management is not letting a good crisis go to waste. It has already committed to cutting significant near-term costs in response to COVID-19 (operating and capital expenditures). In addition, it has stepped up efforts on the previously flagged three-year AUD 150 million structural cost-out initiative and is now targeting AUD 230 million by the end of fiscal 2024.

Nine Entertainment's second positive trading update in five weeks has led to another 7% upgrade to our fiscal 2021 EBITDA estimate to AUD 522 million. Indeed, our operating earnings expectation for the current year has been raised by 27% in total since first positive update on Nov. 12, demonstrating Nine's sheer operating leverage from the faster-than-expected resurrection in free-to-air TV advertising.

Amid the COVID-19-induced uncertainty, we are encouraged by Nine's progress on factors within its control. The balance sheet is well-equipped to weather the current turmoil. Critically, management is not letting a good crisis go to waste. It has already committed to cutting significant near-term costs in response to COVID-19 (operating and capital expenditures). In addition, it has stepped up efforts on the previously flagged three-year AUD 150 million structural cost-out initiative and is now targeting AUD 230 million by the end of fiscal 2024.

Amid the COVID-19-induced uncertainty, we are encouraged by Nine's progress on factors within its control. The balance sheet is well-equipped to weather the current turmoil. Critically, management is not letting a good crisis go to waste. It has already committed to cutting significant near-term costs in response to COVID-19 (operating and capital expenditures). In addition, it has stepped up efforts on the previously flagged three-year AUD 150 million structural cost-out initiative and is now targeting AUD 230 million by the end of fiscal 2024.

We expect Nine Entertainment to deliver a 10% fall in first-half fiscal 2015 net profit after tax, or NPAT, to AUD 85 million. This is due to a confluence of factors, primarily softness in the television advertising market when compared with the same period last year, which was fuelled by strong election spending. We expect conditions to improve in the second half and the company to recover this interim profit decline to post a 0.5% increase in full-year fiscal 2015 year NPAT.

Nine Entertainment Company delivered an increase in group earnings before interest, tax, depreciation and amortisation, or EBITDA of 4.7%, to AUD 311 million, 2% above pro forma prospectus forecasts. Revenue increased 5.8% to AUD 1.578 billion, an outperformance of 0.8% on pro forma forecasts. The result is largely in line with our expectations, while the outlook for fiscal 2015 revenue from the core television group is a little softer than we had forecast.

Nine, along with the rest of the Australian free-to-air television industry, is protected by anti-siphoning legislation which was created to ensure Australian households could freely access events of national importance and cultural significance. Sport is a critical component of this and enables the three incumbent television broadcasters to bid between themselves for the right to offer national coverage for popular live sporting events.

The Standard Media Index (SMI) released industry data which reveals where advertisers are allocating their expenditure to access audiences. The Australian advertising market remains relatively benign reflecting weak macro-economic conditions. Total spend for fiscal 2014 increased by 1.9%. With inflation running at 2.9% the real rate of growth remains negative. Overall industry expenditure for fiscal 2014 is recorded at AUD 7.5 billion. Print advertising has recorded double digit declines with metropolitan newspapers down 19% and magazines down 17%. Digital remains the winner taking share away from print and recording a 21% increase in expenditure. Television recorded a 1.5% increase to AUD 3.6 billion with metropolitan television up 1.8% to AUD 2.6 billion. Industry growth is in line with our forecast for fiscal 2014 and we expect growth to remain in the low single digits over our forecast period. This reflects our view that the Internet will increasingly fragment audiences. The exception is sizable consolidated television audiences for sport and popular proprietary content, which will help to offset this fragmentation.

We reinforce our view on Nine Entertainment Co. Holdings and retain our fair value estimate of AUD 2.10, with the stock price trading marginally above this. Nine is on track to capture a 40% share of metro market television advertising revenues for 2014 to closely match rival Seven, while Ten has failed to connect with audiences as its share of spend dwindles towards 20%. The introduction of digital channels increased the commercial platforms from three to nine. Nine and Seven have brought to the market differentiated channels, diluting the relevance of content from Ten. Our forecasts reflect our view that Ten will remain a weak third player, with Nine and Seven retaining a combined 80% share of television advertising expenditure.

We initiate coverage on Nine Entertainment Company, or Nine, the owners and operators of the Nine Network, Nine Events and Nine Digital, with a fair value estimate of AUD 2.10. Nine was listed in December 2013 from a partial sell-down by private equity holders Oaktree and Apollo. These parties have entered into voluntary escrow agreements, which restrict their ability to sell down further capital until the release of Nine's full-year fiscal 2014 result. Oaktree holds 14.3% and Apollo 22.0%. We don't expect them to be long-term holders of Nine equity.