Last week saw the re-listing of the Nine Network via the initial public offering (IPO) of shares in Nine Entertainment (ASX: NEC). Nine Entertainment houses not just the Nine Network television division but also the Nine Events division (which includes Ticketek) and the Nine Digital division.
For investors, the return of Nine to the ASX offers an opportunity not only to potentially invest in a business which has undergone restructuring while in the hands of its private equity owners but also an opportunity to compare the financials of the business with those of its two free-to-air peers.
After a book build that saw the Nine IPO priced at the bottom end of the indicative price range at $2.05 per share (the shares are now trading at $2), Nine had an implied market capitalisation of $1.9 billion and a price to forecast pro-forma net profit after tax (PE) multiple of 13.8 times.
In comparison, Seven West Media (ASX: SWM) which owns the Seven Network, the Yahoo!7 internet platform, newspaper mastheads and a number of radio stations, is forecast (according to research by Morningstar) to report a decline in earnings per share from 23.8 cents per share (cps) to 22.4 cps. At yesterday's closing price of $2.13 that implies a PE multiple of 8.9 times.
Ten Network (ASX: TEN) is the most 'pure-play' television company of the three listed firms. Its lacklustre ratings performance has made life tough for the network, resulting in Morningstar forecasting a loss for the current financial year. Things are expected to turn around in the 2015 financial year with a forecast 0.8 cps profit. With the shares currently selling at 27 cents, this implies a PE multiple for the 2015 year of 31.3 times.
Foolish takeaway
On the face of it the PE metric would suggest that Seven West Media is the most appealing investment proposition, with Nine's stock trading closer to the market average. However the possibility of a rebound in earnings at Ten Network potentially makes the laggard's stock the most undervalued, although the earnings rebound is far from certain. Importantly, evaluation of each television company must be overlaid with consideration of the potential for structural decline within the television sector.
