Should you be buying Fairfax Media?
Fairfax Media Limited (ASX: FXJ) announced yesterday that it has acquired 100% (up from 50%) of the shares on issue of Metro Media Publishing Holdings (MMPH). You can read the announcement on the ASX here.
In a nutshell, Fairfax will issue 68.5 million new shares which implies a transaction value of $72 million (including $18.5 million in cash). The firm’s current shareholders will receive 65% of their consideration in shares and the remaining balance in cash.
Naturally, a transaction such as this brings up queries about the prospects for Fairfax given their growing presence in the real estate listings market and whether this will derail any growth in REA Group’s realestate.com.au. On the latter point, derailment seems unlikely given REA’s dominance of the sector, which was discussed briefly here.
Getting back to Fairfax, we would first examine their current lines of revenue to see if a business that is making over $14 million in EBITDA per annum (according to MMPH CEO Anthony Catalano) will move the valuation needle. In short, not really, given that the firm has reported earning $306.4 million in EBITDA in FY14.
How about the prospects for some of Fairfax’s other businesses? The below table is sourced from the firm’s FY14 financial statement, page 136 for those interested.
I’ll focus on the top 3 lines, Australian Community Media (ACM), Australian Metro Media (AMM) and New Zealand Media (NZM). ACM is largely the firm’s print & online newspaper arm which unfortunately is well known to be in structural decline as news has become available online and for free. The same set of prospects can be said of NZM which operates a similar business model of print & online publications in New Zealand.
AMM includes print mediums but also includes classifieds. This segment despite its niche appeal also appears to be in decline. FY13’s spread of results versus business segment is below as a comparison.
The business as a whole does have some segments in growth, of which most notable is the Domain website, which will now incorporate the reviewproperty.com.au website originally owned by MMPH. But on the whole it doesn’t seem to stack up currently as a business with bright prospects.
Scott Shuttleworth is an Analyst with Montgomery Investment Management. To invest with Montgomery, find out more.
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