Ten Network (TEN) shares recovered from the lows during yesterday’s sell off, but remained weak at the end in the aftermath of the company’s surprise profit warning and downgrade.
The shares fell 6% at one stage to an all time low of 84.5 cents before recovering slowly to end at 88 cents, down 2.8%. Seeing the company had a 10 to one share consolidation yesterday, the close is equal to 8.8 cents.
At that price investors are really saying Ten has little chance of survival – at this level it is valued at a touch $310 million and has a $200 million plus revolving credit with the Commonwealth bank that will have to be repaid or rolled over later in the year.
It says it is now looking at a loss of around $5 million for the six months to February 28, instead of the previously estimated profit of $10 to $15 million.
Ten Network joined Seven West Media and slashed its estimated first half results from its core TV business, predicting a loss for both the first half of the year, and possibly for the full year to the end of August.
Rivals Nine Entertainment and Southern Cross Media are due to release their December half year results midway through next week.
Ten’s news raises more questions about the health and viability of the network and comes at a time when its second biggest shareholder, Foxtel, has written down the value of its near 14% stake and is under growing pressures of its own from sliding subscriber numbers, falling profits and weak cash flows.
Foxtel’s 50% shareholder (and approver of the company’s management) News Corp wrote down the value of its 50% stake in Foxtel late last week by $US227 million, or close to $A300 million because of a worsening in the financial outlook for the media in Australia and especially TV.
The news will increase pressure on the Federal government and the Senate to not cut to the remaining licence fees, but to eliminate them completely, and approve while changes to ownership and control provisions and the audience reach rule to help the embattled media sector, especially TV.
On Wednesday Seven West Media yesterday reported a 91% slump in first half net profit because of weak ad revenues, and costs associated with the Olympics, the failed Presto joint venture and changes at Yahoo 7.
On an operating basis, earnings were down 25% and while Seven is looking for a slightly better second half, full year earnings will be down 20% and its directors will have to look at possible impairments if there are no positive signs of recovery (as will Nine).
Yesterday Ten talked of making its own impairment tests in the wake of this shock announcement.
It told the ASX yesterday:
“The Company advised that although the advertising market remained extremely short in terms of forward bookings, TEN’s television revenue had increased 1.9% in the first quarter of the 2017 financial year. TEN’s television revenue is expected to increase by approximately 1.2% for the half year to 28 February 2017.
"TEN has continued to increase its market share in a declining advertising market, driven by the strategy of investing in prime time content, and the innovative and market-leading arrangement with Multi Channel Network Pty Ltd.
"As a result of the weak advertising market and increased content and other costs, TEN’s television earnings before interest, tax, depreciation and amortisation (“EBITDA”) for the half year are expected to be $10 million to $15 million lower than the $10.1 million EBITDA profit reported for the previous corresponding period, resulting in an EBITDA loss of up to $5 million.
"As previously advised, a rigorous cost reduction project is underway and a further update will be provided as part of the half-year results presentation. An impairment review, including the value of television licences, will be undertaken as part of the half-year accounting process.
“A continuing decline in television advertising markets, absent any relief in television licence fees, will result in an EBITDA loss for the full year of between $20 million and $30 million."
With James Packer looking to sell his stake (at a whopping great loss), the pressure will now be on other shareholders – Bruce Gordon and his WIN group (the biggest with 14.9%. Gordon and WII are also the biggest shareholders in Nine Entertainment); Lachlan Murdoch and Gina Rinehart (around 18% between them) to help finance Ten if it needs more cash. They will be unwilling to do so.
It has a $250 million revolving credit from the Commonwealth Bank falling due in the next year.
The interim accounts in April will reveal how much has been drawn down and give us an idea as to the chances Ten has of meeting any repayments. the accounts will probably reveal the size of any impairment and write down.
