In two weeks Fairfax Media shares face their biggest test – that’s when shares in the Domain property website listings start trading on a deferred settlement basis (the official date is a week later on November 23).
It’s also when there is no real reason for many shareholders, especially those with a negative view of print media, will start looking at selling down their Fairfax Media holdings because they will have gained a stake in Domain and there is no longer any point in owning Fairfax shares.
The path of the Fairfax share price (1.0975 close yesterday) from the end of this month int early 2018 will tell just how popular the company will be with investors.
Demand from investors for Fairfax shares pushed the price up to a high of $1.10, a rise of 16% in October (but a fall of around 8% from the start of July).
Fairfax shareholders yesterday triggered the looming sell off after they ticked the spin off of the Domain property website business at a meeting held before the annual meeting in Sydney.
The AGM interestingly didn’t hear an update on current trading conditions from company – chair Nick Falloon or CEO Greg Hywood skated over that topic in their prepared addresses.
The share price in the future will depend on the strength of that that trading performance of the company’s remaining assets – the metro and community/regional papers, events, 54% of Macquarie Radio and 50% of Stan, the streaming video venture owned equally with Nine.
Fairfax will be a single asset company – with little to cushion the continuing slide in legacy media businesses such as print.
The 60% of Domain will be the cash cushion that will finance much of the company’s future journalism, either via the contribution from dividends or the realised cash value of the holding based on the Domain share price.
Brutally there’s now no reason for investors to own shares in Fairfax – if you want exposure, buy News Corp, or Seven West Media (which yesterday slipped out a small downgrade to its 2017-18 guidance and saw the shares tank more than 5%), although its shares have remained depressed by the drain in ratings and revenue from the free to air sector, and News is suffering the same angst about print and busy trying to give itself meaning by structuring its pay TV businesses into one coherent operation built around 65% of Foxtel. But Fairfax?
Well over 150 million Fairfax shares have been traded since the end of June, with many bought by by shareholders looking to loan up on Domain shares in the spin off – the only way to do that was to get their hands on as many Fairfax shares as they could without disturbing the share price too much.
The Commonwealth Bank yesterday revealed that it had been topping up its holding in Fairfax Media, jointing US giant in Fidelity in mopping millions of shares in the past month or so. Fidelity boosted its stake by around 45 million shares from the end of June to late last week and revealed a holding of 5.31%.
The Commonwealth (through its super funds in Colonial First State) lifted its stake from just over 5% at the start of October, to 6% earlier this week with the purchase of around 23 million Fairfax shares. That means both Fidelity and the CBA will be substantial shareholders in Domain when the spin off is completed later this month.
