Nine Entertainment (ASX:NEC) surprised shareholders late on Friday afternoon when the company released a profit downgrade. The trading update stated that Nine expects Group EBITDA (before Specific Items and inclusive of Nine Live) for the year ended 30 June 2015 to be lower than previously estimated. In November 2014 Nine expected the result to be in line with last year’s performance, however due to softer than expected conditions the company downgraded its forecast by 6.7% - 8.3%.
NEC opened more than 17% lower this morning as shareholders will continue to assess the events of the past few weeks.
Nine blames a ‘softer than anticipated Free-to-Air advertising market’ in May and June. As a result Free-to-Air market growth is no longer existent as the company expect a low single digit decline.
In accordance with the company’s dividend policy shareholders can still expect a final dividend of around 5 cents following the release of the full year results.
The profit downgrade has also raised questions amongst shareholders and will certainly be of interest to ASIC as CEO David Gyngell sold $1.5m worth of shares in the compony just around two weeks ago. Whilst there is no evidence that David Gyngell knew about the upcoming profit downgrade, NEC shareholders will certainly question the CEO’s actions.
Free-to-Air companies such as Nine are expected to struggle going forward unless they can find ways to diversify or improve the current business model. Wise-owl has reduced exposure in Nine several months ago and hasn’t touched any of its peers ever since. A whole new group of competitors are emerging as online streaming providers such as Netflix are on the rise. Just before the AGM this week, the board of Netflix as well as its shareholders are cheering as the stock price has climbed more than 80% this year trading at an all-time high. Netflix valuation may appear absurd as it is trading at 180 times projected earnings, however it is pretty easy to see a common trend in the multimedia industry.
Nine Entertainment on the other hand has resumed trading this morning following the Queen’s Birthday public holiday weekend. As expected NEC fell more than 17% on the opening, trading at $1.63 at 10:12 am this morning. Uncertainty is expected to remain high going forward and most likely the only consistency in difficult months ahead.
Author: Simon Herrmann
Jun 09, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.