Network Ten’s entire market value was less than $100 million on Friday and the company is now “un-investible”, according to analyst reviews of its half year results.
Shares fell 25 per cent on Friday to close at 27 cents, after falling 19 per cent the day before. This gives the network a paper value of just $99.7 million.
Channel Ten CEO Paul Anderson in a control room at the Channel Ten Studios in Pyrmont, Sydney. Photo: Ryan Stuart
The rout came after management released half-year results on Thursday showing a 2.1 per cent increase in revenue despite a 5.6 decline in the advertising market.
“Ten has clear momentum in terms of revenue and revenue share growth as we head into the strongest part of our year, led by MasterChef Australia,” chief executive Paul Anderson said.
Laurence Freedman, who bought into Ten when it was in receivership in the 1990s and sold out in 2004, says the damage technology has done to the television industry is worse than he expected. Photo: Jacky Ghossein
But this achievement was overshadowed by a $214.5 million impairment charge to its broadcasting licence and the board’s concerns about a $200 million loan expiring in eight months.
“Although the group has increased its market share by 2.7 per cent since February 2014, this improved performance has not been sufficient to offset the deterioration in the advertising market in free-to-air television,” the directors wrote in their report, adding earnings have dropped because Ten’s advertising revenue cannot “fully offset” the higher program costs need to drive improved audience share.
The immediate problem is whether Ten’s management can convince three shareholder guarantors that an internal transformation plan is sufficient for them to guarantee a new $250 million loan. The guarantors include former chairman Lachlan Murdoch, James Packer, and Bruce Gordon.
If they decide not to guarantee the new loan the company may fall into the hands of receivers.
The biggest shareholder of Ten Network is Bruce Gordon, with 15 per cent of shares. He also owns regional broadcaster WIN. Photo: Sylvia Liber
Meanwhile former director Laurence Freedman – part of a team that purchased Ten from receivership in the 1990s – said current conditions for TV are worse than he predicted. Mr Freedman sold out of Ten in 2004 when shares were trading around $2.80 and he and a partner reportedly made profits of around $80 million.
“Even though I took a view a long time ago that technological changes were going to be harmful in some form, I actually never foresaw that they would be this harmful,” he told Fairfax Media.
“And the catharsis will be when someone works out what the new paradigm will be for television. The resurgence will only come when the medium works out how to connect to the broader public again.”
Meanwhile analysts are pessimistic about Ten’s future profitability.
“We believe the case for the loan guarantors ito extend their guarantee is far from clear, particularly given the backdrop of ongoing operating losses, a declining TV advertising market and expected increase in Big Bash cricket rights costs,” Credit Suisse analysts wrote in a note to investors.
“We believe that Ten needs major strategic change if it is to achieve sustainable profitability…We see Ten as un-investible for most investors due to operating losses and funding concerns.”
Credit Suisse expects the network to deliver post-tax losses of $50 million this year, $43 million in 2018 and $57 million in 2019.
Meanwhile Deutsche Bank’s Entcho Raykovski calculates Ten is three years away from profitability.
“Whilst we expect the company to show an improvement in earnings before interest, tax, depreciation and amortisation from 2018-19 (primarily through cost reduction), we don’t expect this number to be positive until 2020-21,” he wrote in a note to clients.
“This underscores the debt renewal risk which is now effectively in the hands of the shareholder guarantors.”
He expects Ten to deliver a $38 million loss this current financial year ($8 million more than management’s own forecast), losses of $28 million in 2018-19 and losses of $18 million the year after.
Macquarie’s team is more optimistic, expecting the losses to be as small as $1.8 million by 2019-20 due to revenues increasing by $20 million to $708 million over two years. However, they cannot recommend it as a good investment.
“Given the difficult operating backdrop and further operating losses it is difficult to make an investment case for Ten, even at these price levels,” Macquarie’s media analyst told clients.