Morningstar | Southern Cross Media Enjoying Today's Recovery
Southern Cross Media reported a 13% decline in EBITDA for fiscal 2018, in line with our expectation, to AUD 155 million. Despite lower revenue from the sale of the northern New South Wales television business, fundamentals are encouraging with like-for-like sales up 0.6%. Critically, revenue growth has stepped up to 5% so far in fiscal 2019, while the continuing ratings recovery for the metropolitan radio unit is highly encouraging. A such, we have upgraded our fair value estimate for no moat-rated Southern Cross by 8% to AUD 1.40 per share.Regional revenue increased 3% like for like in fiscal 2018, leading to EBITDA of AUD 115 million. Radio was the strongest driver, where national advertising revenue increased 15% on the prior year. This is encouraging, considering that national advertisers spend only 9% of their budget in regional areas which account for 30% of the population. In TV, Southern Cross continues to piggy-back on Nine’s ratings success and lifted revenue 4%.
Metropolitan radio revenue fell 2%, leading to a 4% decline in EBITDA to AUD 58 million. This was mainly due to the remnant impact of the poor first half. Improvement was stark in the second half, with June-half EBITDA up 5% to AUD 31 million, driven by improved 2DayFM ratings share. The wider network added 0.1 million listeners in fiscal 2018 to 5.2 million. Investment in PodcastOne continues and has achieved a promising 45 million downloads in the one year since launch, but monetisation remains at an early stage.
The debt-reduction program continues, as net debt fell a further AUD 17 million during fiscal 2018 to AUD 304 million. Financial covenants improved and remain comfortable, with leverage ratio of 1.8 well below the 3.5 covenant limit. At these levels, Southern Cross is in a good position to sustain its dividends while investing in projects such as digital radio PodcastOne. The board declared a final DPS of AUD 0.04, bringing DPS to AUD 0.0775 for the full year.
Southern Cross Media Group is engaged in the creation and broadcasting of content on free-to-air commercial radio (AM, FM and digital), television and online media platforms across Australia.
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