from the spheria august investment update.... "The reaction to...

from the spheria august investment update....

"The reaction to the new affiliation agreement was startling as we believe the new terms to be quite favourable for shareholders, particularly given the cricket rights could lead to a significant upward shift in revenue share, particularly in the regional markets where pay-TV is less penetrated. Furthermore, there are signs of stabilisation in the regional TV markets that tend to lag the metro markets which have returned to growth.

In fact, we forecast PRT to generate EBITDA in the $35 to $40m range in FY19, only slightly down on the $45m in FY18. We believe EBITDA is a better proxy of profit/cash flow given capex for the business is $3-4m a year whereas depreciation will be >$12m due to legacy amortisation and depreciations costs which
artificially deflate NPAT (including NPAT guidance provided by company). In fact, we calculate the
company is trading on 2.4x pre-tax free cash flow, which means shareholders will get their money back
in 2.4 years – all other thing being equal.

Add to that they have nearly $60m of franking credits versus a market cap of $87m and you quickly realise this company is brimming with value. In addition to its stand-alone valuation, there are enormous synergies in SWM buying PRT such that a merger is undeniably a huge win-win for both sets of shareholders. We estimate the synergies for SWM at >$10m p.a. assuming elimination of head office costs and national sales force duplication. This is one of the key reasons for our large exposure in SWM."