Australia | Jul 30 2007
By Greg Peel
If there’s one thing analysts do not put a lot of faith in, it’s the ongoing strength of traditional free-to-air television advertising. Sure, there have been better “comps” this year given a poor FY06, but one little bounce does not detract from the fact that FTA TV is the dinosaur of the media sector.
That’s why some investors were sceptical when high-flying new media advertising buyer emitch acquired the Mitchell group of companies in April to form the Mitchell Communications Group (MCU). As a specialist in the rapidly growing market of online advertising, the move for emitch looked a bit of a backward step. However, it appears Mitchell may have proven the detractors wrong for now.
MCU yesterday announced it expects to exceed its FY07 profit forecast of $7.3m by at least 10% due to the Mitchell contribution. There were no specific details given, but analysts note that FTA TV advertising growth leapt 6.6% in the second half of FY07 – higher than expected despite coming off a 1% decline in the previous corresponding period. Merrill Lynch notes that Mitchell has displayed positive momentum in winning new clients, having added Mitre 10, Dan Murphy and BWS in the last quarter.
Merrills’ analysts are expecting a further 5% growth in FTA TV ads in the first half of FY08, given that we are about to enter a period we all dread but media buyers love – rampant election advertising.
UBS further suggests that Stadia Media would also have been a contributor to the profit upgrade.
This should go along way to boosting investor sentiment, suggests GSJB Were. MCU has significantly exceeded its Mitchell Group forecast of $11.5m EBIT made in December 2006. Weres expects 28% earnings growth over FY07-10 and Merrills suggests 40% profit growth driven by the 60% accretive acquisition driven by the cross media bundling opportunities across the combined traditional/new media platform.
These are the only three brokers covering MCU in the FNArena database. After adjusting their earnings forecasts accordingly, the three retain Buy ratings. Weres has set a target of $1.55, UBS $1.65 (up from $1.55 yesterday) and Merrills $1.75.
The stock is trading around $1.26 today.