Even though West Australian Newspapers is riding the resources and property booms in Perth, it’s hard to see it maintaining its current high rating, not with Kerry Stokes, owner of the Seven TV Network, with his corporate foot on its throat.
Seven has just over 15 per cent of WAN’s shares, effectively removing it from the media takeover game.
It is not going to be taken over by anyone else and with a dearth of deals around at acceptable prices, it’s hard to see it being an acquirer of substance.
The company’s high price earnings ratio of more than 26 times trailing earnings is well above the market’s P/E of 17 while the dividend yield at 3.6 per cent is also a bit richer than the market’s 3.5 per cent.
The company is doing well, with it yesterday revealing a solid third quarter result, to push profits for the first nine months of the year well ahead of last year.
But investors punting on corporate action involving WAN might be waiting a while because Stokes is a holder, not a seller.
WAN shares traded a bit lower yesterday after the result, touching a low of $16.33 before recovering in the afternoon to close 4c up at $16.69
WAN said that the outlook was solid after higher revenues and earnings, especially at the West Australian newspaper.
WAN said net profit for the nine months to March was $81.65 million compared to $43.19 million in the corresponding period last year with ‘normalised’ net profit of $93.7 million for the nine months, compared to $78 million in the previous corresponding period.
WAN CEO, Ken Steinke said the result reflected strong market conditions in Western Australia.
“This is a strong result which reflects both the favourable economic conditions in Western Australia, and the pre-eminent position of our products in their respective markets,” he said.
Revenue for The West Australian newspaper rose by 14.5 per cent to $263.9 million, up from $230.6 million with total gross advertising revenue at the paper up 13 per cent.
WAN said that in the first four weeks of the June quarter advertising revenue at the The West Australian was 11 per cent above the same period last year.
WAN said its regional newspapers also had performed strongly, reflecting the mining and property boom in the south and mid west of the state. The company’s regional papers in Kalgoorlie, Geraldton and Albany saw earnings rise 25 per cent to $6.3 million for the nine months.
But a look at the figures for the company shows there’s only one asset that matters; the West Australian. It is a monopoly except on Sundays, dominating the Monday to Saturday advertising market in Perth and the state.
With that monopoly it’s no wonder it dominates the revenues and earnings of the listed company. It accounted for 79.4 per cent of total group revenues in the nine months to March, compared to 78.4 per cent for the first nine months of 2006.
A look at the way revenue has grown shows that the paper is doing very well, and when it does well, so does the company.
“Total gross advertising in The West Australian rose 13.0 per cent in the nine months, with an 8.1 per cent increase in volume and a 4.9 per cent increase in the average advertising rate per column centimetre.
This increase is higher than the rate card increase because of the mix favouring higher-yielding sectors.
Total display revenue increased 10.5 per cent with National display increasing 17.7 per cent and Local display increasing 7.2 per cent. Total Classifieds revenue increased by 13.9 per cent with Employment increasing by 21.1 per cent and Real Estate increasing by 21.4 per cent.
New Homes performed strongly during the period with revenue 45.8 per cent above the prior corresponding period.
The strong increase in advertising volumes and revenue in the March quarter was due in part to the low comparative figures in the March quarter of the previous financial year.
Circulation revenue in The West Australian rose 8.8 per cent as a result of an increase of 20 cents to $2.20 in the cover price of the Saturday edition, in February 2006, and an increase of 10 cents to $1.20 in the cover price of the Monday to Friday editions, in September 2006. Internal data shows paid circulation levels slightly below the corresponding period Monday to Friday while Saturday is tracking around 2 per cent below the prior year.
The only black spot was the downturn in the March quarter in returns from the 50 per cent-owned Hoyts Cinemas business.
WAN said an absence of blockbuster movies in the March quarter saw the contribution fall declined by nine per cent to $8.5 million. PBL owns the other half of Hoyts.
But WAN believes Hoyts will improve this quarter with a number of stronger releases expected such as Spiderman 3, Pirates of the Caribbean 3 and Shrek 3.
The latest result compares to the company’s performance at the end of the first half when normalised net profit (before noteworthy items) “rose 25% increase to $64.5 million for the six months to 31 December 2006.
“This result includes 27 trading weeks for all business units other than Hoyts Cinemas and Community Newspapers. The additional trading week this half-year accounted for 3.8% of the increase, making the underlying increase 21%. Net profit as reported (after noteworthy items) increased 134% to $56.1 million.”
