NEC Share Price Drop Today, page-23

Fat Prophets Summary

The softness in the advertising market evident in the first trading updates from Nine, Domain and Fairfax rattled investors, but excessively so in our view.

Firstly, the challenges being faced by traditional media advertising channels are nothing new, and indeed are a key premise of the merger between Fairfax and Nine. The combination will, in our view, strengthen the enlarged entity as it looks to combat industry disruption. Significant synergies will be extracted from the merger, and this along with further cost cutting, will boost earnings. Growth in higher margin digital channel revenues (a common feature of the three trading updates) will also drive profitability.

Nine shares are trading on 10.4 times forecast FY19 earnings, falling to 9.2 times the following year. The prospective yield over the same time frame is 4%, set to expand to 7.1%.

We recommend Nine Entertainment as a buy to Members without exposure.