Nine Entertainment’s streaming service Stan has been a topic of conversation in media circles of late, and now it appears analysts at Morgan Stanley have become part of the discussion.
While no sale or initial public offerings plans for Stan are currently said to be on the table, one theory currently circling in the market is that its media owner Nine may look to sell down part of the business in the future.
This could be through a float or an IPO, where Nine capitalises on the current booming conditions for movie and television content streaming providers amid the COVID-19 pandemic.
A sell down would also limit its exposure to risks associated with disruption in the space by media production giants launching their own content streaming businesses, such as Viacom CBS and Disney.
Some suggest that investment banks - thought to include UBS - have been pitching the idea to Nine and Stan, although sources close to the company say that no current plan is in the works.
Nine Entertainment counts Michael Stock from Jefferies Australia as its long-term adviser.
Should Stan be spun out of Nine Entertainment in a similar structure to Domain Group (of which Nine remains the largest shareholder), the market may ascribe more value to the business.
Morgan Stanley analysts Andrew McLeod and Raymond Tan estimate that the value of Stan to be around $1bn including debt and believe its earnings before interest, tax, depreciation and amortisation could grow to $80m annually by 2023.
The analysts say that revenue for streamed content has experienced strong growth.
“We felt the market hasn’t been paying enough attention to Stan,” Mr McLeod said in a analyst research report released this week.
“We think as the market gets more comfortable with the sustainable earnings of these assets, we think there will be a re-rate of the shares.”
Currently, Stan is a wholesaler and re-seller of content and only a small proportion is produced by Stan itself.
For the 2020 financial year, it generated $31m of EBITDA, with revenue up 54 per cent to $242m and a margin of 12.8 per cent.
Started over five years ago, the business is second or third in the market behind Netflix, the analysts said, with a key driver to its subscription growth being exclusive access to drama content.
Overall, the streaming market in Australia is worth $1.7bn, the analysts said, involving 12 million subscribers paying about $12 per month on average.
Of that, Stan has about 2.2 million subscriptions or a market share of about 18 per cent.
They believe the number of subscribers will grow to about 3.1m by the 2023 financial year.
As a result, they also estimate that Stan’s revenue will increase to about $400m in the 2023 financial year from about $240m.
They also believe that Stan’s margins could reach 25 per cent in the long term.
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