One broker described them as a “cathartic” set of results, but Peter Yates isn’t about to collapse with heart failure. Last week’s $84.6 million annual net loss might have been the first in the company’s history, but the new Publishing and Broadcasting chief executive is optimistic about the future despite a tough advertising environment.
Investors clearly share his optimism. PBL shares have held up remarkably well since last Wednesday’s release of the results despite the numbers receiving a mixed reception from analysts.
PBL is trading on a prospective price-earnings multiple for 2002 of just over 19 times based on consensus earnings per share forecasts of 50.8¢ per share, up from last year’s disastrous -12.8¢.
As one fund manager noted last week, there is still some upside in the PBL share price. Against its peers, the stock looks a little on the cheap side, with John Fairfax trading on a prospective P/E for 2002 of nearly 22 times, Seven almost 28 times, and News Corp 47.8 times.
Investors have been heartened by Yates’ declaration that the writedowns associated with the One.Tel collapse and the failed Indian television venture would not be repeated. They found comfort in the appearance of executive chairman James Packer for his act of One.Tel contrition. There is also reassurance in Kerry Packer’s renewed enthusiasm for day-to-day involvement in the business.
Deutsche Bank justifies its “buy” recommendation by claiming the result commentary removed two major uncertainties, confirming a lower risk investment strategy and the underlying strength of operating businesses Pengeluaran HK .
Credit Suisse First Boston said the “abnormal carnage”, as it described the result, reflected the “new chief syndrome of wishing to clear the decks and make the task of improving earnings that much easier.”
The underlying strength of the PBL balance sheet is hard to ignore. The company marginally decreased its debt levels in 2001 by $38.7 million, from $1.77 billion at June 30, 2000 down to $1.73 billion.
Interest cover is 5.7 times, while last year the group generated $442 million of net operating cash flow, retaining $182 million after capital expenditure and investments.
One of the biggest issues facing the company over the next 12 months is the general advertising malaise and when it will turn. It’s also nearing the end of the line for the lucrative tax losses obtained through the takeover of Melbourne’s Crown Casino, which ensured the group paid an effective tax rate of only 15 per cent last year and 13.4 per cent in the second half. Macquarie Equities believes that rate could almost double to nearly 30 per cent by 2003.
The Nine Network’s EBITDA fell 12.7 per cent to $252.7 million, with the greatest hit in the second half when television advertising revenue dropped by 10 per cent. Seven’s broadcast of the Olympic Games didn’t help, while the comparative period was a tough one after the 2000 result was boosted by pre-GST advertising spending on Nine.
There was also what Yates labelled as “noise” over Nine losing its No1 rating with the introduction of the OzTAM ratings system.
Costs in the TV business were contained, rising only 4.6 per cent – well under the underlying inflation rate. That will need to continue in the year ahead, with Yates warning advertising revenue was likely to be flat for at least the next nine months.
Gaming is certainly the growth platform for PBL, with Crown’s EBITDA rising 10 per cent to $300.2 million. In fact, given the division accounted for just under 50 per cent of group EBITDA in 2001, brokers like Merrill Lynch are wondering if PBL should be reclassified as a gaming stock.
Crown enjoyed a $22.5 million windfall from the international high-roller business, with a win percentage of 1.39 per cent compared with the theoretical rate of 1.28 per cent.
With a strategic stake in Burswood Casino, PBL clearly sees the WA casino operator as a potential takeover play. But at the moment, its progress is blocked by the Government-enshrined 10 per cent shareholding cap, so it was little surprise James Packer said Burswood was an unlikely acquisition in the very near term.
After a disappointing year when EBITDA was down 17.1 per cent to $93.8 million, Australian Consolidated Press is looking forward to an improved future. ABN Amro noted that divisional chief John Alexander is the most upbeat of all the managers about 2002.
Alexander said new titles, a fall in paper prices and the lack of any foreign currency impact meant the division’s profits in the first quarter would rival the record returns of the previous corresponding period and the trend was continuing in the second quarter.
Foxtel will be a significant growth engine for PBL if it can sort out its differences with 50 per cent shareholder Telstra over the bundling of services. Foxtel’s annual losses of $10.3 million were balanced by an estimated $7-8 million profit from the Fox Sports business, a 50:50 joint venture with News Ltd.
Yates would certainly like to take PBL international, though he will be wary of the Indian television “punt”, as James Packer described it, which cost the group $54 million in after-tax writedowns.
For a business staring at a sea of red ink, things are looking surprisingly healthy inside Kerry Packer’s bunker. If the man himself can retain his new zest for the business and James Packer can re-establish his credibility with investors, PBL could yet become the “one to watch” in 2002.