The Seven West Media Ltd (ASX: SWM) share price had a false start today, finishing the day nearly 8% lower as investors reacted to the company’s full-year FY21 results.
Despite today’s backwards step, Seven West Media shares have been doing summersaults recently, up more than 30% year-to-date and almost quadrupling over the last 12 months.
Seven West Media share price chart
Seven West Media is one of Australia’s prominent media companies. It’s well-known for its television channels which include Seven, 7TWO and 7mate, among others. It also has a presence in news, particularly in Western Australia.
Through its TV channels, Seven West Media is currently the broadcast partner of the AFL, Cricket Australia and, of course, the Olympics.
How did Seven West Media perform in FY21?
For the year ended 26 June 2021, Seven West Media achieved revenue of $1.3 billion, up 3.5% on the prior corresponding period (pcp) on a continuing operation basis. The result was boosted by a recovery in the metropolitan TV advertising market and the growth of the company’s on-demand streaming service, 7plus.
Importantly, Seven noted it was the only network to grow its commercial audience share across the key demographics in the financial year.
In line with the company’s transformation strategy, it delivered $200 million in operating cost and cash savings, driving a 7.5% reduction in operating costs to $1.0 billion.
What’s more, the improved TV advertising market outlook has led to a $208.5 million reversal in the company’s TV license impairment. And the better than expected performance of the Olympics has resulted in a $20.6 million reversal in the Olympics onerous provision.
During the 17 days of the Olympics, television and digital coverage reached 20.2 million Australians, with a record-breaking 4.74 billion minutes streamed on 7plus.
This helped the company to report a net profit after tax (NPAT) of $318.1 million, a complete turnaround from the $201.2 million loss recorded in FY20. Underlying EBITDA of $253.9 million and EBIT of $229.1 million increased 105% and 141%, respectively, compared to the pcp.
On the balance sheet, Seven reduced its net debt by $158 million to $240 million, with the net debt/EBITDA leverage ratio now 0.95.
Despite the impressive profit result, the company’s dividend remains temporarily suspended as it focuses on prudent capital management and balance sheet flexibility.
The company is now almost two years into its strategic plan announced in 2019, which revolves around the three priorities of content-led growth, transformation, and capital structure and M&A.
Digital powers the future
Commenting on the results, CEO James Warburton highlighted the company’s digital business, saying, “The evolution of the digital and data side of our business has been a core element of our transformation strategy and the results are clear.”
During the year, 7plus revenue grew 78% in the financial year, outstripping the broadcaster video on demand (BVOD) advertising market growth of 55%. 7plus now has 9.2 million registered users.
Seven’s digital earnings in FY21 were $60 million, up 131% over the previous year.
In a sign of what’s to come, the company expects digital earnings to double to more than $120 million in FY22.
Trading update
Looking ahead, Seven said positive market momentum has continued into the first half of FY22. Advertising markets have bounced back from the depths of the pandemic, and 7plus is generating strong advertising revenue growth.
The company is targeting 40% broadcast share in the first half, while West Australian Newspapers (WAN) revenue is tracking 7% ahead on July last year.
Encouragingly, first-quarter revenue bookings were up 60% (or 50% when normalised for AFL timing), and Q2 bookings (excluding AFL) are currently tracking low to mid-single digits ahead of 2Q21.
The company noted that cost controls remain a core focus within the business. Operating expenses are tracking in line with guidance, despite lockdown challenges, and Seven is guiding for between $1.08 billion and $1.1 billion of operating costs in FY22 on a normalised basis.
My take
The impressive headline results weren’t enough to support the optimism already baked into the Seven West Media share price – hence the negative reaction today.
The company has undoubtedly come leaps and bounds since bottoming out at around 6 cents amidst the 2020 COVID crunch. In fact, it’s now trading comfortably above pre-pandemic levels.
The rebound in advertising markets, broadcast winners like the Olympics and strength in the digital business are reasons to be excited. But it’s now over to management to continue the turnaround story and fuel long-term shareholder value – something the company has struggled to do over the last decade.
Listed competitor Nine Entertainment Co Holdings Ltd (ASX: NEC) is set to hand in its annual results next week on Wednesday, 25 August. To find out when your favourite ASX companies are reporting, be sure to bookmark Rask Media’s ASX reporting season calendar.
