Seven West Media: Shares fall by 17 per cent

The market can be brutal in 'confession season'

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published April 26, 2012 3:58 pm AEST

What: Seven West Media Group Limited (ASX: SWM) provided a market update on Tuesday 24^th April 2012, stating "…previous expectations of the market strengthening in the final quarter are unlikely to be met".

The directors updated full year Earnings Before Interest and Taxes (EBIT) to be in the range of $460m to $470m. Considering the company made $309m in the first six months to December 2012, the company is forecasting to make just $150m to $160m in the second half. That's a 50 per cent fall in EBIT. No wonder the shares fell 17 per cent.

So what: Along with retailing, media is the other sector of the Australian economy struggling. As I mentioned in this article on Ten Network Holdings Limited (ASX: TEN), advertising revenues were down across the whole market, and in the free-to-air television market, that's your major source of income.

Another issue affecting the free-to-air TV sector is the rise of portable media devices, with smart phones and iPads now better equipped to view high quality video and TV. With a wealth of high quality media available online, perhaps it's no surprise more and more people are turning off free-to-air TV, and switching to other forms of entertainment.

It's a never ending downward spiral, with more advertisers moving to where consumers will view their ads, further destroying the free-to-air broadcaster's income.

With loads of debt backed up by intangible assets, consisting mainly of those same free-to-air TV licences, media companies such as Seven and Ten could face more issues in the not too distant future.

Now what: It's no real surprise that free-to-air media is in the same precarious situation as the major retailers, such as David Jones Limited (ASX: DJS) and Myer Holdings Limited (ASX: MYR).

Both sectors appear to be undergoing structural shifts, which don't appear to be good news for the health of the companies in those sectors. It may be an idea for investors to avoid these companies until the future becomes clearer.

The ASX is already on the move in 2012, and Goldman Sachs experts recently said they reckon S&P/ASX 200 could top 5,000 next year. Read This Before The Coming Market Rally is a must-read for investors who don't want to miss out on the party. Click here now to request your free copy, before it's too late

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Motley Fool contributor Mike King doesn't own shares in any of the companies mentioned. Take Stock is The Motley Fool Australia's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).

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