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Financial Mail - Investors Monthly - - Contents - Marc Hasen­fuss

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

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