It's a case of complete opposites amongst media stocks today with the news publisher Fairfax Media Limited (ASX: FXJ) is leading the gainers amongst the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) with a rise of 6.2% just before midday, while in contrast leading advertising agency STW Communications Group Ltd (ASX: SGN) is leading the decliners with a hefty fall of 8.4%.
Here's what's going on…
Fairfax – whose troubles to adjust its business model to the digital age are widely understood by investors – has reported a strong set of full year results. Amongst the highlights from the group was a decline in net debt of $222 million leaving it with a net cash position of $68 million and an underlying net profit which soared 79.6% to $154.8 million. There was also a rise in the final dividend taking the total dividend for the year to four cents per share (cps) – a yield of 4.2%.
Looking forward Fairfax is now in a much stronger position with the company's business model undergoing significant adjustments in the face of major structural changes across the media industry. CEO Greg Hywood stated that the new, stronger Fairfax would look to "invest in new business areas where our content gives us competitive strength – including education, travel, health and lifestyle."
Combined with an update on the current trading environment that revenues are currently 1% to 2% below last year, investors appear to be looking more favourably upon Fairfax's future.
Meanwhile, STW Communications reported an underlying 5.3% increase in revenue but only a 1% increase in underlying earnings per share (EPS) for the half year. Net debt to equity also increased from 33% to 37%. The board declared an interim dividend of 3.3 cps fully franked which was flat on the prior half and equates to a trailing yield of 6.4%.
In terms of outlook, STW described the market as "very challenging" with mid-single digit growth in EPS and net profit expected after including the benefit of a recent acquisition. Given the guidance by management, investors appear to have focussed on the negative headwinds facing STW and sold the stock down in response.
