Southern Cross Media Group Ltd (ASX: SXL) shares were down 10% on Friday after the company released its December 2017 half year results. Here are the highlights:
- Revenue was down 5% to $333 million although on a like for like basis it was up 1.5% when the prior year impact of the recently divested Northern NSW TV business is excluded
- EBITDA for the 6 months decreased
- Net profit was down 21% to $38 million
- A fully franked interim dividend of 3.75 cents per share was declared
The company also known as SCA, broadcasts content on free to air commercial radio, TV and online media platforms across Australia. It had seen its share price go up by 10% over the last week after analysts had indicated that they view its intrinsic value being closer to $1.60 per share. Its share price is currently trading at $1.07.
SCA has been on a two-year journey to improve its balance sheet by selling non-core assets and using the proceeds to reduce debt and improve its financial position.
This move is achieving the desired outcome with net debt down 31% from $472.6 million in December 2015 to $324.8 million in December 2017. The interest cover ratio has improved from 5.86 to 10.6 and the leverage ratio has also improved from 2.6 to 1.92 over the same period which is within SCA's preferred target range.
Foolish takeaway
SCA is a company that probably comes up on many value investors' stock screens. After all, on paper it has many favourable metrics such as a PE ratio of 8.7 (compared to the sector average of 15.95) and a dividend yield of 7.5% (compared to the sector average of 4.7%) according to Morningstar.
A closer look however and you will see that SCA is not within a growth industry and it shows. Its 10-year average sales growth rates have been negative 5.7% and the company has provided its shareholders with a negative 3.4% total shareholder return over the last 10 years.
I think it is a value trap and long-term investors could be better off looking elsewhere for returns.
