Tomorrow is L for Loss day for the embattled Ten Network (TEN) with the struggling third commercial TV network expected to reveal weak revenue, losses and a possible asset write down for the six months to February 28.
But if you look at how the share price has continued to sink in the last month, the stockmarket says there is considerable doubt about the network’s survival. Ten shares closed at 45 cents on Monday, an all time low and (equal to 4.5 cents before last year’s one for 10 share consolidation). The shares hit a low of 44.5 cents in late trading.
The shares are down from 49 cents a week ago today – a fall of 10% and down from the all time high of $1.47 last October. The company’s market value of $163 million, a fraction of what it was just over six months ago.
At a price of 45 cent that investors are saying that not only is Ten going to announce a loss and a big impairment of the value of the TV licences, but there’s also doubt the company is a going concern, and that there is also doubt the company can meet its debts as and when they fall due.
In the forefront of their minds is the $200 million revolving credit provided by the Commonwealth Bank and drawn down to the extent of at least $98 million at the end of the network’s 2015-16 financial year on August 30. That credit is due to expire on December 23 and investors are looking for some sort of confidence building statement from Ten (and proof) that any monies owning on that credit can be repaid.
If Ten fails to reassure investors that it can deal with the loan, doubt will grow that the company can survive in its current form. At its August 31 full year balance date, Ten had a book value of $382 million, more than double yesterday’s market value of $163 million. That indicates an impairment of more than $200 million. The only asset of any size is $346 million of intangibles (mostly the value of the TV licences). That doesn’t leave very much leeway for any further problems and would be dependant on the resolution (or clarification) of the CBA credit and the monies owed on it.
That won’t be good news for big shareholders, former chair, Lachlan Murdoch, Gina Rinehart, James Packer and Bruce Gordon who have lost hundreds of millions of dollars in their Ten play.
At the same time Foxtel, 50% owned by News Corp, might have to further impair the value of its shareholding in Ten (currently around 14%). The December quarter report from News Corp revealed that as at December 31, Foxtel was carrying “$22 million in losses associated with the change in the fair value of Foxtel’s investment in Ten Network Holdings.” Telstra, which owns 50% of Foxtel, must be over the moon about the money wasted on the Ten play, a deal that was driven by News Corp Australia.
Ten’s shares were trading at 91.5 cents on February 15, the day before it revealed its latest profit problems, a statement which triggered the latest and most telling sell off for the company.
In that February statement Ten said “At the TEN Annual General Meeting on 8 December 2016, 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.”
We will know more tomorrow before trading starts.
