Packer Parting With PBL A Positive

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            [1] => ((SEK))
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This story features SEEK LIMITED.
For more info SHARE ANALYSIS: SEK
The company is included in ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

By Andrew Nelson

There is no longer a Packer on the bridge of PBL Media, a ship that still includes the once all powerful Nine Network and ACP Magazines. The James Packer run Consolidated Media Holdings ((CMJ)) announced it will not contribute any further equity funding to PBL Media and in fact write off its equity stake, while James Packer and right hand man John Alexander along with cohorts Chris Anderson and Martin Dalgleish have all resigned from the board.

The Packer media story starts more than 85 years ago, when James’ grandfather Sir Frank Packer’s ACP first launched the Australian Women’s Weekly. The  television story starts back in 1956, when Sir Frank beamed the first TV signals to an Australian audience. From that day until last year, the Nine Network was Australia’s leading television broadcaster, steered to greatness by James’ father Kerry Packer.

However, fortunes shifted after the death of Kerry in December 1995 and by last year the network lost its seemingly permanent top spot to rival billionaire Kerry Stokes’ Seven Network. James Packer was then faced with the choice of  maintaining a media empire or building a gambling empire. The choice was the latter.

The wheels were soon in motion, with James’ plan to exit the media empire taking its first steps after the Federal Government’s new media laws  removed many of the barriers to foreign ownership of Australian media in October 2006. This saw what was then Publishing and Broadcasting Limited flog off half of what was to become PBL Media to private equity firm CVC Asia Pacific for $4.6bn. In 2007, the newly formed Consolidated Media Holdings sold of another 25% for $525m.

Consolidated Media Holdings still owns a 50% stake in Fox Sports, a 25% piece of pay TV operator Foxtel and a 27% holding in listed job advertising site Seek ((SEK)), which are all generating money, and of course the now discarded 25% chunk of PBL Media. But the decision to cease funding to PBL Media will see CMJ’s stake diluted over time. The decision to no longer equity account for that investment and walk away from the board entirely, means a Packer will no longer be running the shop.

Shaw Stockbroking media analyst Greg Fraser thinks this will allow the market to focus on CMJ’s more valuable media assets, such as Foxtel and Fox Sports. Analysts at Citi note that with shareholders possibly being asked to inject an additional $300m into the company, CMJ’s stake would be diluted from 25% to less than 10%.

With more than $5.1bn in the pocket (nearly 5 times what Kerry sold Nine to Alan Bond for back in 1987), no more obligations and a 25% stake in a business that could still come good., the question must be asked: Would Kerry actually be disappointed in the loss of his baby?

That’s where we were up to until yesterday.

Now CVC is left with 75% of a media company that it paid more than $6bn for and that is being crushed by a debt load of $4.2 billion. With earnings of just $463 million pre-tax, many expect the business will struggle to just pay the interest on the outstanding debt given that advertising revenues were one of the first victims of the current economic downturn.

But that’s their problem.

In the meantime, James Packer and his band of merry men at Consolidated Media are focused on building up a global casino business and one thing is for sure, there’s not a single Australian broker so far who thinks the shaking off of PBL Media is anything other than good news for the stock and a step in the right direction for the business.

In fact Credit Suisse analysts, who are the most bullish on the stock after upgrading to Outperform on the announcement and maintaining a target price of $3.00, said their valuation actually rises post the divestment, as it allowed them to remove the 10% discount they had previously applied to their valuation to account for the equity risk perceived in PBL Media. Although, the broker says it moved to Outperform on valuation reasons because of the hammering the shares have taken over the last couple of months.

Deutsche Bank sees the move as having led to “a significant de-risking of CMJ”, which it expects will  lead to a renewed interest in what is an attractive growth profile and strategic value of the pay television and online investments. Citi are even more harsh in their assessment, saying concerns around further capital injections to PBL Media are the main reason the stock is trading at a significant discount to fair value.

Merrill Lynch offers more of the same, thinking the move to distance itself from PBL Media and to ensure all and sundry know that there will be no further equity injections is “a clear positive for CMJ”. The potential for further significant underperformance is now limited and the announcement will go some way to help alleviate PBL Media related market concerns.

However, and this is why it’s the only Neutral on the database, the broker thinks the company needs to address the issues of visibility and disclosure, which it feels are not good. Get that done, the broker says, and there’s a good chance the broker will take a more positive view and the stock will trade closer to its valuation. 

All in all, the stock warrants five Buys and one Neutral post the announcement, with upgrades coming from Credit Suisse and Deutsche and Macquarie, while ABN Amro upgraded earlier in the month on valuation grounds. Target prices range from Merrills $2.20 to Credit Suisse’s $3.00, with an average of $2.69.

Today, shares in Consolidated Media were trading 2c higher at $2.10 versus a 12 month trading range of $1.655-$4.58.

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