Right wave­length

Finweek English Edition - - Companies & Markets - SHAUN HAR­RIS

THE SHARE PRICE has de­fied re­cent weak­ness on the JSE – up more than 30% over the past month, 22% of that com­ing in the week to last Tues­day. Re­cently re­leased an­nual re­sults were a fac­tor, but the way Kag­iso Me­dia is han­dling the in­cor­po­ra­tion of other me­dia plat­forms, mainly the In­ter­net, with its tra­di­tional broad­cast­ing and pub­lish­ing in­ter­ests seems to be en­cour­ag­ing in­vestors.

It’s an is­sue all me­dia and pub­lish­ing com­pa­nies are grap­pling with. Ra­dio sta­tions are the big busi­ness at Kag­iso Me­dia and it’s rapidly mov­ing be­yond tra­di­tional broad­cast­ing, run­ning cam­paigns where lis­ten­ers can ac­cess ra­dio con­tent and pro­mo­tions over the air, on the In­ter­net or via cell­phones.

Its port­fo­lio of ra­dio sta­tions – in­clud­ing top brands, such as East Coast Ra­dio, Jacaranda and Kaya FM – pro­vide ad­ver­tis­ers with ac­cess to 8,3m lis­ten­ers/week. Ad­ver­tis­ers are pre­pared to pay top dol­lar for that, ev­i­dent in the gen­er­ous 51% op­er­at­ing profit mar­gin for broad­cast­ing.

But 50%-owned pub­lish­ing busi­ness Lex­isNexis (the old But­ter­worths) is also evolv­ing and in­cor­po­rat­ing the In­ter­net. Its core busi­ness re­mains con­tent pro­vi­sion, where Lex­isNexis is SA’s largest pub­lisher of law, tax and ac­count­ing uni­ver­sity text­books.

That divi­sion’s op­er­at­ing profit mar­gin, though not as high as broad­cast­ing, is none­the­less an abun­dant 31%. Kag­iso Me­dia also sees huge po­ten­tial in In­ter­net ad­ver­tis­ing, say­ing it’s the world’s fastest grow­ing ad­ver­tis­ing seg­ment.

In­vestors will be ask­ing whether its share price hasn’t run away with it­self. Prob­a­bly not if you look at the qual­ity of Kag­iso Me­dia’s earn­ings.

For ex­am­ple, net cash gen­er­a­tion of R163,4m largely finds its way through to at­trib­ut­able earn­ings of R159m, so there’s not much cash be­ing ab­sorbed by work­ing cap­i­tal and other book de­mands.

Fur­ther ac­qui­si­tions are likely. This share should keep strongly beat­ing the mar­ket.


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