Nine shares rally as Morningstar slashes valuation
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More news: Nine Entertainment shares rallied, gaining back from losses earlier in the day, after the media group warned of a "challenging" outlook for its TV business for the rest of the year.
Nine shares were up 1.4% to $1.11 by 3:10pm AEDT, having shed more than 45% since January.
Morningstar cut its fair value estimate on Nine by 7% to $2.50 per share, with analyst Brian Han noting that the TV advertising market downturn shows "no signs of abating".
Morningstar also lowered its fair value estimate on Seven West Media, which flagged a sharp drop in revenue for the first half of FY25 earlier today, by 8% to $37 per share.
Morningstar slashed its medium-term EBITDA forecasts for both Nine and Seven by around 9%, reflecting the expected impact of a "prolonged TV advertising recession, which the current pace of efficiency improvements cannot offset".
The board was also hit with a first strike after shareholders voted down its remuneration report.
What they said: "Critically, we expect the two companies to take further actions to reduce expenses and improve operating efficiencies," Han said.
"They are now run by two former CFOs who are more attuned to the nitty-gritty side of hard costs and less enamored with the glitzy side of marketing fluff.
"As such, there are likely to be no sacred cows for Nine acting CEO Matt Stanton and Seven CEO Jeff Howard as they look to recalibrate their companies' costs, all in the name of 'business evolution', 'new operating models', and 'digital future'."
Nine expects 10% decline in Q2 amid 'challenging' outlook
The news: Nine Entertainment said it expects a 10% decline in second-quarter TV revenue compared to the previous corresponding period, warning that it sees "no tangible signs of improvement to date".
Also, chair Catherine West and director Andrew Lancaster will be re-elected based on proxy votes counted prior to its annual general meeting (AGM) held today. This is despite calls from a proxy adviser to hold them accountable for the company's toxic culture.
The numbers: Nine reported Q1 total TV revenue growth of "around 15%", reflecting the positive impact of the Olympics and Paralympics in July and August. Metro free-to-air revenue was up in the "high single digits" with broadcast video on demand revenue growing by "close to 50%".
However, Nine said the total TV market "remains challenging" and expects the second quarter to revert to the rate of decline seen in FY24 — around 10% down on the previous corresponding period.
In Nine's publishing business, digital subscription revenue grew 14% in the first quarter. However, with the absence of digital platform revenue from Meta platforms, revenue and earnings from the segment are expected to be down in FY25 compared to FY24, the company said.
Nine's radio advertising revenue grew by 6% year on year in the first quarter, with an increasing contribution from live audio streaming.
The company also announced that it would take a further $50 million of underlying costs out in FY25 — equating to a two-year total of around $100 million.
Meanwhile, Nine's 60%-owned real estate platform Domain, which reported a Q1 trading update on Wednesday, increased revenue by 8% year on year, boosted by a 6% rise in new paid listings.
The context: Following mounting pressure over the company's internal culture, with Institutional Shareholder Services (ISS) urging shareholders to vote against the re-election of chair West and prominent director Lancaster.
Proxy votes counted prior to the AGM saw 82.81% vote in favour of the re-election of West and 91.68% in favour of the re-election Lancaster.
About 62.5% voted in favour of the adoption of Nine's remuneration report, with 37.41% against, indicating a first strike against its board.
The sources: ASX announcement, Morningstar research
