Don Groves is a Deadline contributor based in Sydney
With the exception of News Corp., Australia’s established media companies get low marks in Commonwealth Bank Australia’s latest media research report. The bank’s analysts have a buy rating on News Corp. due to its strong growth potential and robust balance sheet but are bearish on Seven West Media, Ten and Fairfax Media. Its top media stock pick, perhaps surprisingly, is Seek, Australia’s leading online job site, despite the subdued employment market and economic uncertainty. Seek also has subsidiaries in South East Asia, China, Brazil and Mexico. The bank says Fairfax, whose board is under siege from its largest shareholder, mining tycoon Gina Rinehart, faces the risk of accelerating falls in its print revenues. It warns that Ten’s costs, particularly in acquiring content such as premium sports rights, could see higher-than-forecast increases. Its analysts believe Seven West Media needs to raise at least $400 million in fresh capital to alleviate concerns about its debt levels, which it estimates at 3.7 times earnings before interest, taxes, depreciation and amortization. The bank is comfortable with News’ 2.5 debt/cash ratio and is optimistic about its plans to split into separate entertainment and publishing companies, but questions whether the cash generated from the split will be returned to shareholders or used for acquisitions.
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