Australia | Apr 13 2012
– Ten's interim result below expectations
– Most brokers adjust forecasts lower
– Views remain divided on outlook for the company
By Chris Shaw
Ten Network ((TEN)) yesterday released its interim profit result and despite having pre-released operational results in February earnings till fell a little short of market expectations. As Citi notes, total revenues for the period were down 11% in year-on-year terms and net profit after tax of $15 million was a decline of more than 70% in year-on-year terms.
Both the TV and outdoor advertising divisions posted lower results, UBS noting while the TV operations were boosted by strong performance at digital offering ELEVEN this meant a larger amount of profits had to be paid away to CBS, Ten's joint venture partner in the channel.
Post the interim result brokers have been quick to adjust earnings estimates lower for Ten, with Citi cutting its earnings per share (EPS) forecasts by 25% this year and by 24% in FY13. This reflects both lower revenue assumptions and increased minority interest charges from the ELEVEN joint venture.
Others have followed suit, UBS lowering its estimates by 8-10% through next year, Credit Suisse by 26% and 18% respectively and BA Merrill Lynch cutting its FY13 earnings forecast by around 4%. BA-ML did go the other way with respect to FY12 forecasts in lifting its estimate by 8%. Consensus EPS forecasts for Ten according to the FNArena database stand at 3.8c for FY12 and 5.6c for FY13.
Price targets have also been adjusted given the changes to earnings estimates, with the consensus target according to the database falling to $0.84 from $0.87 previously. Targets range from Deutsche Bank at $0.62 to Credit Suisse at $1.19.
The result was accompanied by relatively upbeat commentary from management, Citi noting there is a clear focus on the programming schedule and audience ratings. Having said that, the broker suggests it remains early days in terms of any turnaround.
Deutsche Bank is also cautious with respect to the outlook for Ten, suggesting while the current strategy is encouraging improved ratings for the core channel will be critical in restoring the group's fortunes. Some improvement is expected over time, but as Deutsche notes, operating conditions remain difficult at present.
This won't be helped shorter-term by the loss of AFL programming and the upcoming London Olympics, though as BA-ML points out new programs to add to the returning Masterchef and Offspring could provide something of a boost.
Ten continues to receive a spread of broker ratings, scoring two Buys, two Sells and four Hold recommendations among the eight brokers in the FNArena database. The Buy argument is a valuation call, UBS suggesting there is upside from current levels even though it is expected to take some time for improved ratings to translate into higher revenues and earnings. Having said that, UBS prefers Seven West ((SWM)) in the sector.
Among the Neutrals on the stock is Citi. The broker suggests revenues and earnings could be at the low point of the cycle now, though signs of stabilisation in audience numbers and subsequent scope for earnings upgrades is needed to justify valuation at these levels.
BA-ML is also Neutral on Ten, pointing out while the stock is trading on an earnings multiple of around 23 times in FY13, which is more than twice the multiple of Seven West, this is justified by factoring in a control premium given the potential for corporate activity involving the company.
Deutsche in contrast sees the current multiple being paid for Ten as excessive as despite earnings issues the stock is trading above the broker's revised valuation. This makes Ten a high risk proposition for Deutsche, justifying a Sell rating.
In a stronger overall market shares in Ten today are higher and as at 11.25am the stock was up 3c at $0.81. This compares to a range over the past year of $0.725 to $1.40 and implies upside of around 4% to the consensus price target in the FNArena database.
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