Brokers Turning Conservative On Austar

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This story features AURUMIN LIMITED.
For more info SHARE ANALYSIS: AUN

By Chris Shaw

For some time regional pay-TV group Austar United Communications ((AUN)) has been seen by the market as a defensive play given it has an effective monopoly on its services in regional markets and it offers a relatively cheap entertainment option. This means buyers are likely to stick with it even when economic times are tougher.

This view remains intact post the group’s September quarter report, with ABN Amro arguing the company should be able to outperform the media sector in an economic downturn given these defensive qualities, while UBS points out the business continues to show its resilience even in a weaker economic environment.

The group’s quarterly result was largely in line with expectations. Revenue of $160.4 million was 1% better than UBS had expected, while both customer churn and ARPU (average revenue per user) improved from the numbers reported in the June quarter.

In EBITDA (earnings before interest, tax, depreciation and amortisation) terms the result was also broadly in line, with the $53 million result being a little above UBS’s number but a little below consensus. This means little in the way of changes to current year estimates have been made, but broker’s have taken a more conservative approach to the group’s longer-term outlook and adjusted 2009 forecasts lower.

For example, ABN Amro has lowered its 2009 EBITDA estimate by 7% to $222 million, which compares to its forecast for the current year of $210 million. Citi is a little more optimistic and is forecasting EBITDA of $214 million this year and $234 million next year, while Credit Suisse is at $212 million and $245 million respectively.

Where numbers have changed more significantly is in earnings per share (EPS) terms, as adjustments for interest swap losses have resulted in UBS cutting its numbers by 62% and 22% respectively to 1c and 3c, though the EPS number is of lesser relevance given the structure of the company and its balance sheet, as underlying earnings growth for the current year should be in the order of 20%.

While performance in the quarter was viewed as solid, there are some issues. ABN Amro points out the increase in subscriber numbers in the period came at higher cost to the company, though as Credit Suisse notes this was not entirely unexpected and the company expects cost increases going forward to be in line with CPI.

A positive for Merrill Lynch is the company is not likely to need additional capital anytime in the next 6 to 12 months, which is a favourable situation given the liquidity and credit problems in financial markets at the moment. It also supports the broker’s Buy rating, while overall the FNArena database shows a total of seven Buys and two Holds, with no changes to ratings post the quarterly.

The average price target on the stock according to the database is $1.40, down only slightly from the $1.43 average prior to the quarterly result. Today, shares in Austar are higher and as at 1.30pm the stock was up 3.5c or 3.9% at $0.935. Its trading range over the past year is $84.5c to $1.70.

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