NZME mastheads The New Zealand Herald, Weekend Herald and Herald on Sunday.
NZME mastheads The New Zealand Herald, Weekend Herald and Herald on Sunday.
New Zealand Media & Entertainment's full-year result has given cause for optimism for a company battered by Covid's impact and structural decline of the industry, according to the one analyst who covers the stock.
NZME, which owns the NZ Herald, a number of other media assets and property website OneRoof,this week reported operating earnings of $67.3 million – slightly ahead of forecast – and a bottom-line profit of $14.2m compared to the previous year's $165.2m loss. The result included Government wage subsidies of $8.6m accessed last April.
A couple of things stood out in the result.
First, NZME's balance sheet is now in a much stronger state, with net debt down to $33.8 million from $74.7m a year ago and, according to Jarden analyst Arie Dekker, it is on track to move to a net cash position over the next 18 months.
"Not only does this pave the wave for resumption of dividends in second half [of financial year 2021] but it also completes a meaningful de-risking of NZM, providing a basis for increased investor confidence," Dekker said in a research note.
The second highlight was a small but significant milestone the company achieved in terms of new revenue streams.
Revenue from its NZ Herald Premium news subscription service and digital classified advertising from real estate platform OneRoof had passed $10m by the end of the financial year.
While tiny in the scheme of NZME's revenue base, it does indicate the company's growth strategy is starting to bear fruit.
NZME's operating revenue came in at $331.2m, down 11 per cent on the previous year because of the impact of Covid on advertising. Advertising revenue fell 16 per cent to $218.9m.
Dekker notes that growth in digital subs revenue was sufficient to offset retail declines, with print subscription revenue flat.
"There are some positive signs in key growth initiatives but at just $11 million combined revenue across One Roof Digital and Digital Subs, the outlook for profit remains dominated by what happens with traditional advertising revenues," Dekker said.
"There are positive signs, but it is early and this is reflected in cautious commentary on outlook from NZME."
Since its launch in April 2019, the NZ Herald Premium news subscription service has grown to 102,000 subscribers, including more than 53,000 paid digital-only subscribers, generating revenue of $6.6 million in 2020.
Real estate platform OneRoof held the number one position in residential for-sale real estate listings in Auckland for most of 2020, with more than 89 per cent of listings in New Zealand as at December 31, 2020. The portal contributed $4.3 million of digital classifieds revenue in the year.
NZME chief executive Michael Boggs said the overall 3 per cent lift in ebitda to $67.3m highlighted the "resilience of the news and entertainment business".
"We have 3.3 million New Zealanders who are really engaged with our content and our platforms and that's been solid through the year.
"We are seeing advertisers being cautious. They are booking later and holding their decisions and the events of the last week or so show things can move quite quickly. But the last two months of the year saw advertising revenue grow year on year in November and December."
NZME chief executive Michael Boggs. Photo / Dean Purcell
Commenting on digital subscriptions, he said it was pleasing to pass 100,000 digital subscribers.
"We are continuing to see strong growth there and it's a highly engaged audience," Boggs said.
"Also pleasing is during this period reader revenue – the combination of digital and print subscribers - grew for the year."
Dekker, the only analyst to cover the stock, said he was still cautious about the impact ongoing structural challenges could have in the medium term.
"Notwithstanding that we feel incrementally more comfortable on the immediate trajectory with NZME having meaningfully derisked the business for investors with its debt focus over recent years.
"In addition, its demonstrated track record on costs as well as some of the gains coming through in digital advertising (share gains) and the new digital initiatives help de-risk the impact of further structural pressure in print advertising."
Key risks, he said, included a deteriorating economic outlook and greater structural pressure on NZME's traditional advertising revenues.
Jarden has revised its target price from 80c a share to 99c and upgraded its rating to "overweight" from neutral.
NZME shares recently traded at 83c and are up 127 per cent over the past 12 months, having hit a low of 18c last April.
