Bleak outlook for Seven West Media shares, says analyst

Seven West Media shares have halved over the past year and in a difficult TV advertising market the company is a ‘one trick pony’ with nowhere to hide, analysts say.

Channel Seven studios at Docklands in Melbourne. Picture : NCA NewsWire / Nicki Connolly

Seven West Media shares have halved in value over the past year and analysts don’t see anything on the horizon to revive the stock’s prospects.

In fact, with free-to-air advertising bookings remaining weak and the upcoming Paris Olympics on rival Nine, there’s little for the market to get excited about with Seven.

The outlook is bleak when you add the winding down of payments from social media giant Meta and potential costs to flow from Seven’s various legal losses and disputes in recent times.

Seven shares have halved from 40c to 20c over the past year, and the company has not paid a dividend since 2017.

A note released by broker UBS in the past week says that early Standard Media Index (SMI) data for metropolitan free to air ad agency bookings fell 17.1 per cent year on year in March, following a 13.4 per cent year on year fall in February.

“SMI notes that industry bookings for April remain weak and are lower than usual with the value of total bookings equivalent to 59 per cent of the previous corresponding period and May tracking to only 37.4 per cent of the previous corresponding period.

Meanwhile a research note released by E&P last month argued that Seven was more reliant on the Meta payments than the more diversified, and much larger Nine Entertainment Co and News Corporation - the publisher of The Australian - both of which have large digital and real estate revenue streams.

Meta, the owner of social media platforms Facebook and Instagram, has said it will not be continuing payments under the News Media Bargaining Code to Australian publishers beyond the end of this financial year, and recently removed the News tab from Facebook.

While Meta could be forced to the bargaining table by the federal government, there are fears this would likely result in the platforms blocking news content entirely, as happened in Canada last year.

“The negative EBITDA (earnings before interest, tax, depreciation and amortisation) impact is most significant for Seven West Media (at) negative 8 per cent, followed by Nine at negative 3 per cent and relatively minor for News Corp at less than 1 per cent,’’ E&P said.

Morningstar Australia director of equity research Brian Han said Seven’s lack of diversification was a problem.

“If the forward bookings are so weak for TV, at least in the near term, and you combine that with the fact that Seven, unkindly, is basically a one trick pony in terms of being a TV business, then you have a company which really has nowhere to hide,’’ Mr Han said.

One area where the company could move the needle was on cost control, but Mr Han said the performance on that front, “hasn’t been stellar’’.

“When you combine all of that, then investors say, ‘Well, what’s the near-term upside for us?’’’ Mr Han said.

“We might as well wait for real, tangible evidence of an advertising recovery, to actually have a look at the stock.’’

Mr Han said the Paris Olympic Games being televised on a rival free to air network in Nine would also put pressure on advertising revenue flows.

“At the end of the day, it’s really about the fact that it’s just less well diversified than others,’' Mr Han said.

Goldman Sachs has a Buy rating on both News Corp and Nine, and a Sell rating on Seven.

Originally published as Bleak outlook for Seven West Media shares, says analyst