Morningstar: Southern Cross shares are trading below fair value

Chris Pash
By Chris Pash | 16 October 2019
 
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Morningstar has cut its fair value estimate for Southern Cross Media shares by 7% to $1.30, reflecting a challenging advertising market dragging on the broadcast media group's near-term earnings.

The shares closed at $0.925 yesterday after announcing an 8.5% drop in September quarter revenue compared to the same three months last year.

Morningstar cut by 23% its full year EBITDA forecast to $130 million, on a 10% cut in sales to $610 million.

"Beyond the current year, the reduction in our earnings estimates is more modest, at less than 10%," writes Brian Han, senior equity analyst in a note to clients. 

"Advertising expenditures are notoriously fickle and we expect cyclical recovery, albeit the timing is uncertain on the impact of
stimulus (such as record-low interest rates) on business and consumer confidence.

"Granted, there is a risk some of these lost advertising dollars may not come back, as they disappear into a structural black hole where digital insurgents reside.

"However, we believe that risk is adequately factored in our revised forecasts."

share chart

The analysts says the market's violent reaction to the negative trading update is understandable given the scale of the downturn.

"It will take time for this sentiment to reverse," says Han.

"But we see significant value at current levels, given the group's exposure to the 'relatively' resilient radio space (over 80% of earnings before corporate costs), steady market share positions and its solid balance sheet." 

 

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