US firm patient in buying into NZME

AUCKLAND: San Franciscobased Osmium Partners had been watching NZME for three years before it decided to invest, founder and managing partner John Lewis says.

A Monday NZX filing revealed that on September 1, Osmium crossed the mandatory disclosure threshold. It had built an 8.8% stake over a series of trades, buying shares at prices from 25c to 40c.

NZME, publisher of The New Zealand Herald, was at 44c in noon trading yesterday, valuing the company at $86.5 million, and Osmium’s stake at $7.6 million.

So what led the investment management firm to finally buy close to 9% of the media company?

‘‘Coming into the fourth quarter, I thought this would be a very rough time, but NZME pivoted rapidly and pulled out a win,’’ Mr Lewis said.

‘‘Ebitda was up, and it was guiding to more profit in 2021.’’

On August 25, NZME reported a 5% increase in operating earnings to $28.9 million as rapid restructuring efforts and new online initiatives, including premium subscriptions and OneRoof, helped offset Covid19’s impact on advertising.

The board said dividend payments could resume after June 30 next year.

‘‘A lot of great businesses are built in times when others are going in reverse,’’ Mr Lewis said.

‘‘The New Zealand Herald is the New York Times of New Zealand.

‘‘There will always be a market for quality journalism, whether it’s in print or online.’’

Management had been executing well in the company’s digital transition, he said.

New Zealand’s low Covid numbers also appealed.

More broadly, NZME fitted the criteria his firm had been using since 2002 to identify moneymakers.

‘‘We have a process that we call the ‘Osmium 8’, which looks for a low business valuation, ability to grow earnings over time, a strong track record of capital allocation, reasonable barriers to entry, a superior user experience, attractive underlying economics, a good balance sheet, and strong board that is fair with shareholders.’’

NZME is Osmium’s first investment in New Zealand, and its first in a media company.

Jarden research analyst Arie Dekker has an ‘‘outperform’’ rating on NZME, and raised his 12month price target to 47 cents following the halfyear report.

At 44c his firm considered NZME to be ‘‘substantially undervalued,’’ Mr Lewis said.

‘‘We see NZME able to sustain a 3 centspershare dividend while continuing to invest around $12 million capex annually in the business and still pay off debt.’’ — The New Zealand Herald