PICK OF THE MONTH
African Media Entertainment
The staggering returns that punters have made on huge broadcast and internet business Naspers in the past decade have so overshadowed the JSE’s media sector that the handful of other listings are close to being neglected.
Naspers — with a market capitalisation of over R700bn — not only dominates the market’s media landscape but is now one of a handful of counters that has a huge bearing on the daily shifts in the all share index.
The combined market capitalisation of the remaining four media listings — Caxton, Seardel (soon to be renamed e-Holdings), African Media Entertainment (AME) and AltX-listed Moneyweb — is less than R12bn … or less than 2% of Naspers’s market capitalisation.
Seardel is trying, with some difficulty, to broaden its profitable e.tv free-to-air bouquet into a broader digital television offering. With Hosken Consolidated Investments (HCI) and Remgro as major backers, Seardel’s efforts probably won’t lose focus, though it might be a while — at least judging by the weak signals in the share price — before the market sees a clearer picture on longer-term prospects.
Caxton has an influential stake in tiny Moneyweb and 34,9% in Cognition Holdings, which at a stretch (it has niche services in research, promotions, texting and database management) could be deemed a media company. Caxton’s prime movers, Terry Moolman and Noel Coburn, hold a 35% interest in AME.
One might suspect a grand new media scheme could unfold in the hands of Moolman and Coburn. The spread of assets, if lumped into one listed company, could form a diversified, cash spinning media conglomerate. One could get even more excited if a greater Caxton conglomeration and Seardel teamed up — not so far-fetched considering Remgro holds a 7% stake in Caxton.
But what looks exciting on paper might not have any merit in reality — it’s worth noting that Moolman and Coburn recently begged exemption from making a mandatory offer to minority shareholders in AME when their shareholding breached the 35% level after a small share buy-back.
Perhaps Moolman and Coburn’s reticence to make an offer to minorities at AME is significant in terms of what is being planned for the company’s longer-term future.
At present, AME is the antithesis of Naspers. The company is a straightforward radio broadcasting play — holding control of two stations, Algoa and OFM, as well as 100% of United Stations (which sells advertising, sponsorships and promotions and develops sustainable market-driven concepts for radio).
This is a far cry from the acquisitive company that listed in the late 1990s and rushed recklessly into film production assets, online ticketing and even boxing promotions.
The beauty of the current version of AME is that its business model is as simple and clear as an FM radio signal. Though it doesn’t own the biggest radio assets in SA, the operations are growing steadily … at reassuring margins and without straining the balance sheet.
Most impressive in the year to end-March 2015 was the net profit margin of 31% (up from 28% last year), which speaks volumes about management’s ability to run a tight ship in a difficult trading period for media businesses.
Earnings came in at 608c/share with a generous dividend payout of 350c/share — meaning the share offers a historic earnings multiple of 15 times and smart yield of over 3,6%.
Prospects for the year ahead look good. Regional stations like Algoa and OFM, which don’t face the same competition as national stations or regional stations in larger centres, look set to continue tuning profitably into their respective markets. United Stations continues to impress, adding two new radio station contracts to its portfolio in the second half of the financial year to increase its footprint into all major markets and ratchet up its weekly audience to 7m listeners.
Interestingly, AME finished its financial year with cash resources of R105m — which seems an outsized hoard considering the company generates around R255m in annual revenues and has a market capitalisation of around R800m.
That cash pile should underpin the generous dividend policy in the (unlikely) event profits take a dip in the year ahead. But the chances of a portion of the cash pile being mobilised for niche acquisitions can’t be ruled out either.
AME is worth sounding out at current levels — the only challenge is to find worthwhile parcels of shares at reasonable prices. The company has only 8m shares in issue — a situation that is unlikely to change considering the stout balance sheet.
Perhaps the reticence to make an offer to minorities at AME is significant in terms of what is being planned for the company’s longer term future