Shares in West Australian Newspapers slumped after the company’s earnings fell short of forecasts and it sounded a cautious tone about its outlook for advertising revenue.
But perhaps the big issue that drove the price down was the board’s rebuff of Perth-based billionaire, Kerry Stokes’ campaign for board representation.
The shares ended down 73 cents, or 8.1% at $8.23 and that drop took Seven shares down 39 cents to $8.00 at the close, a loss of 4.6%.
The loss in the Seven share price lopped all of the gains from Monday’s buyback announcement and reasonably solid 2008 profit.
It was a poor performance for both companies on a day when the market was up 137 points, or well over 2%.
The two companies fell because of a less than exciting earnings result for the WAN for 2008 and a cautious outlook, and the board moves that have limited Mr Stokes’ options.
Seven is down around $200 million on its WAN shares now and didn’t provide for any diminution in value in its 2008 profit statement.
Having paid $540 million for the 42.3 million shares, they were worth around $350 million yesterday.
Both companies are joined at the WAN share register: Stokes through his 45% controlled associate, Seven Network, has 22% of WAN and is now snookered after the Perth-based newspaper group revealed a crafty method for appointing a new director.
The appointment of a man called Doug Flynn, who used to work for News Corp and was approached by Fairfax back in 2005 to be its CEO (He said ‘no’) was named to replace a director who retires this year.
That means there won’t be an existing director retiring this year and unless Stokes and Seven want to vote against Mr Flynn (and vote against what he has called for, directors with media experience), the Seven chairman is stuck and unable to do anything.
Mr Stokes tried to get two representatives (including himself) onto the WAN board earlier this year and was rebuffed by the company.
Despite continuing talks, his ambitions have not been met and the WAN board effectively delivered him another rejection with yesterday’s announcement of the Flynn appointment.
He and Seven can’t buy any more shares in WAN until January because the grabbed the allowed 3% under the takeover code’s so-called ‘creep rule (3% every six months in on market purchases), so it’s no wonder Seven shares dropped yesterday and wiped out the gains, and a bit more from its buyback news on Tuesday.
Seven will ask shareholders next month to approve the buyback of a further 40 million shares, or up to 19.4% of the capital, a move that could see Mr Stokes cement a controlling 50.01% plus interest in the media group.
The board moves overshadowed what was a poor result from WAN
The company said underlying net increased 11% to $121.9 million in the year to June 30, but earnings before depreciation, interest, tax and one-off significant items came in at $219.4 million, shy of the $222.6 million expected by the market.
And when the company said it, "remains cautious in its outlook for advertising revenue, given the low levels of business and consumer confidence" investors took to the sell button, especially as it was in the context of disappointing 1.7% fall in classified advertisements for the first four weeks of this financial year, which began on July 1.
"For the first four weeks of the September quarter, advertising revenue is up 2.4% on the corresponding period – reflecting a 5.3% increase in display and a 1.7% decline in classifieds, with particular softness in employment and motoring. Real Estate remains strong," the company said.
With retail sales sluggish in the boom state, housing finance and approvals weak (and house prices fell 2.4% in Perth in the June quarter, the largest of all the capital cities) the notion that Western Australia and especially Perth is still gripped by the resources boom, should be well and truly buried.
Billions of dollars are still being spent on new mines, roads, ports and other projects and infrastructure, but the boom in the other parts of the state’s economy has peaked. It wouldn’t surprise to see a second rise in three months in job losses in the state when the July employment figures are released later today.
The company declared a final dividend of 32 cents per share, fully franked, from 31 cents last year.
WAN said in the profit statement that "Underlying Group Revenue and EBITDA up 7.3% and 14.6% respectively; Underlying revenue at The West Australian up 5.3% and expenses down 2.1%, primarily reflecting the positive impact of the Herdsman press upgrade; Investment in circulation and marketing stabilises circulation and readership; Digital growth on track with upgrades of thewest.com.au and the launch of classifieds real estate; Continuing strong performance in magazines, regional newspapers and radio."
