Read on Twitter
Swamped atm, hence a bit quieter lately. Missing you heaps tho and just too tempted to provide my $0.02 on New Zealand Media & Entertainment $NZM $NZMEF, as I think name doesnt get sufficient attention and might be a multi-bagger in the making.
THREAD
THREAD
1)
Quick valuation metrics to get your attention (no's are rounded)
MC 170m
ND FY21e 10m
Rolled fwd EV 180m
EV/FY21 EBITDA (pre IFRS16) ~3.0x
FY21 UFCF/EV 25%
Div yld 12.5% (30-50% pay-out to be resumed in H2'21)
$NWSA $NYT $GCI
Quick valuation metrics to get your attention (no's are rounded)
MC 170m
ND FY21e 10m
Rolled fwd EV 180m
EV/FY21 EBITDA (pre IFRS16) ~3.0x
FY21 UFCF/EV 25%
Div yld 12.5% (30-50% pay-out to be resumed in H2'21)
$NWSA $NYT $GCI
2) Who is NZM? Quint-essentially, NZM is New Zealand’s #1 media house, reaching 3.2m Kiwis or ~60% of pop via quasi-monopolistic local media means, primarily thru NZ’s biggest daily newspaper (NZ Herald), biggest Sunday newspaper & biggest newspaper magazine (Tuesday Travel).
Who is NZM? Quint-essentially, NZM is New Zealand’s #1 media house, reaching 3.2m Kiwis or ~60% of pop via quasi-monopolistic local media means, primarily thru NZ’s biggest daily newspaper (NZ Herald), biggest Sunday newspaper & biggest newspaper magazine (Tuesday Travel).
3) Whats the equity story? A) Lets start with @mjmauboussin expectations investing. Based on NZM’s FY21e UFCF & 10% WACC, current valuation implies -10% growth expected into perpetuity. In other words, NZM is priced as dying publisher that missed print to digital conversion.
Whats the equity story? A) Lets start with @mjmauboussin expectations investing. Based on NZM’s FY21e UFCF & 10% WACC, current valuation implies -10% growth expected into perpetuity. In other words, NZM is priced as dying publisher that missed print to digital conversion.
4) B) Whats not to like about a stock where expectations embedded in price are low? Well, not so fast. Expectations even if low still need to get beaten for rerate. Whilst nothing is certain in life, odds that NZM can beat currently embedded assumptions are favorable IMO.
B) Whats not to like about a stock where expectations embedded in price are low? Well, not so fast. Expectations even if low still need to get beaten for rerate. Whilst nothing is certain in life, odds that NZM can beat currently embedded assumptions are favorable IMO.
5) NZM’s equity story is about a mispriced print to digital conversion option (only a small fraction has to be converted). Worth highlighting that a conversion story is always easier than top of funnel/penetration (growth) story.
NZM’s equity story is about a mispriced print to digital conversion option (only a small fraction has to be converted). Worth highlighting that a conversion story is always easier than top of funnel/penetration (growth) story.
6) There are a few other welcome catalysts in the story, such as earnings momentum, “media content taxes” from big tech and monetization of other digital assets in the group (eg GrabOne). In meantime, Co will pay 12.5% div yld from H2’21, helping to derisk the base.
There are a few other welcome catalysts in the story, such as earnings momentum, “media content taxes” from big tech and monetization of other digital assets in the group (eg GrabOne). In meantime, Co will pay 12.5% div yld from H2’21, helping to derisk the base.
7) Worth noting that NZM also has radio segment and owns online RE platform (OneRoof). Radio has been flat’ish, RE is a free option on a rapid growth platform. These assets are not core to thesis tho. All about publishing here. If conversion to digital works, the stock works.
Worth noting that NZM also has radio segment and owns online RE platform (OneRoof). Radio has been flat’ish, RE is a free option on a rapid growth platform. These assets are not core to thesis tho. All about publishing here. If conversion to digital works, the stock works.
8) What are benchmarks/case studies of successful conversion stories?
A) NYT 6.5m digital subs, 5% of HH, 2% of pop, 4.2% of Unique Audience (UA), B) New Corp Australia 650k digital subs, 7% HH, 2.6% pop, 3.9% UA, C) The Times 350k digital subs, 1.2% HH, 0.6% pop, 3.8% UA
What are benchmarks/case studies of successful conversion stories? A) NYT 6.5m digital subs, 5% of HH, 2% of pop, 4.2% of Unique Audience (UA), B) New Corp Australia 650k digital subs, 7% HH, 2.6% pop, 3.9% UA, C) The Times 350k digital subs, 1.2% HH, 0.6% pop, 3.8% UA
9) Lets run some numbers on NZM.
NZ pop: 5.2m, NZ HH: 2m, NZM UA: 1.7m
NZM FY20 paying subscriber base: 165k
- 65k print only
- 50k print + digital
- 50k digital
Lets run some numbers on NZM. NZ pop: 5.2m, NZ HH: 2m, NZM UA: 1.7m
NZM FY20 paying subscriber base: 165k
- 65k print only
- 50k print + digital
- 50k digital
10) Today's digital subs are 1% of pop or 3% of UA; is it wild to assume that NZM can grow this to 140k by FY25 equiv to 2.7% of pop or 8.2% of UA?
Today's digital subs are 1% of pop or 3% of UA; is it wild to assume that NZM can grow this to 140k by FY25 equiv to 2.7% of pop or 8.2% of UA?
11) Is it wild to assume that there is demand for a meaningfully lower cost, quasi monopolistic local news product above and beyond existing print ($184 vs. $511 print ARPU)? I don’t think so.
Is it wild to assume that there is demand for a meaningfully lower cost, quasi monopolistic local news product above and beyond existing print ($184 vs. $511 print ARPU)? I don’t think so.
12) Some might say that if NYT reaches only 2% of pop or 4% of UA today, how can NZM reach 2.7/8.2% by FY25? Ah well, first we have another 5 years to go, ie lets see where NYT stands by then.
Some might say that if NYT reaches only 2% of pop or 4% of UA today, how can NZM reach 2.7/8.2% by FY25? Ah well, first we have another 5 years to go, ie lets see where NYT stands by then.
13) Second, NYT is not a l-f-l comp in that regard IMO given much more material political/socio-economic/geographical dispersion in US. Ie NZM's Herald can reach materially higher % of pop/UA vs NYT given less diverse readership and quasi-monopolistic market structure in NZ.
Second, NYT is not a l-f-l comp in that regard IMO given much more material political/socio-economic/geographical dispersion in US. Ie NZM's Herald can reach materially higher % of pop/UA vs NYT given less diverse readership and quasi-monopolistic market structure in NZ.
14) Other pointers that support successful conversion thesis thus far: A) Since launch of digital site (H2’19), print vol has been flat’ish, yet they have added 50k digital-only subs (+60% YoY in FY20).
Other pointers that support successful conversion thesis thus far: A) Since launch of digital site (H2’19), print vol has been flat’ish, yet they have added 50k digital-only subs (+60% YoY in FY20).
15) Some of this was driven by Covid, no doubts, but this is an acceleration of adoption curve rather than pure one-time boast with unwinding in reopening era IMO.
Some of this was driven by Covid, no doubts, but this is an acceleration of adoption curve rather than pure one-time boast with unwinding in reopening era IMO.
16) (B) Co also very forthcoming with disclosure at last yr’s Cap Mkts Day. Best-in-class stats on retention/churn, % active users, % registered users, % subscribed users. This indicates they do something right IMO, unless all driven by Covid.
(B) Co also very forthcoming with disclosure at last yr’s Cap Mkts Day. Best-in-class stats on retention/churn, % active users, % registered users, % subscribed users. This indicates they do something right IMO, unless all driven by Covid.
17) Tying it altogether: I tried to be super conservative with revenue build-up. Lets obliterate print revs to almost zero by terminal year (FY29). Lets assume tiny growth in print+digital subs (that’s where some of the print only subs migrate to), whilst leaving ARPU flat.
Tying it altogether: I tried to be super conservative with revenue build-up. Lets obliterate print revs to almost zero by terminal year (FY29). Lets assume tiny growth in print+digital subs (that’s where some of the print only subs migrate to), whilst leaving ARPU flat.
18) Lets grow digital-only subs to 3% of pop/10% of UA by FY29, whilst leaving ARPU again flat.
Lets grow digital-only subs to 3% of pop/10% of UA by FY29, whilst leaving ARPU again flat.
19) My assumptions are way below management’s turnaround plan. They expect 275k digital-only subs by FY25 vs. me 138k. I am in line on print subs, but again way below their print+digital subs estimate. I also obliterate print ad, whilst not overly bulled up on digital ad.
My assumptions are way below management’s turnaround plan. They expect 275k digital-only subs by FY25 vs. me 138k. I am in line on print subs, but again way below their print+digital subs estimate. I also obliterate print ad, whilst not overly bulled up on digital ad.
20) Despite these punitive assumptions, we get to a biz that shows publishing rev stabilization and/or small growth from FY27 onwards, with declines meaningfully decelerating in the interim.
Despite these punitive assumptions, we get to a biz that shows publishing rev stabilization and/or small growth from FY27 onwards, with declines meaningfully decelerating in the interim.
21) Put aside that this is only 50% of group EBITDA, I would argue this case justifies a multiple materially higher than the 2.7x the biz trades at today.
Put aside that this is only 50% of group EBITDA, I would argue this case justifies a multiple materially higher than the 2.7x the biz trades at today.
22) We have not even touched upon other catalysts. Eg GrabOne sale. 3m EBITDA biz, Groupon competitor in NZ, several parties interested, slap 10x on it and cash proceeds worth $30m or 20% of current MC.
We have not even touched upon other catalysts. Eg GrabOne sale. 3m EBITDA biz, Groupon competitor in NZ, several parties interested, slap 10x on it and cash proceeds worth $30m or 20% of current MC.
23) “Media content taxes” from BigTech. Australia’s Seven West and others get paid $30m pa for providing content to Google. That’s a bit over $1 per capita. NZ politicians push into same direction. Could be worth $5m for NZM (10% of EBITDA).
“Media content taxes” from BigTech. Australia’s Seven West and others get paid $30m pa for providing content to Google. That’s a bit over $1 per capita. NZ politicians push into same direction. Could be worth $5m for NZM (10% of EBITDA).
24) I also take comfort from US activist fund Osmium Partners accumulating a c20% stake in the biz. Yes, the Aussies are selling down, but with all the respect Osmium > Aussie funds IMO.
I also take comfort from US activist fund Osmium Partners accumulating a c20% stake in the biz. Yes, the Aussies are selling down, but with all the respect Osmium > Aussie funds IMO.
