Southern Cross Media is fielding several unsolicited approaches with regional TV in the frame

Southern Cross Media Group chief executive Grant Blackley.

Southern Cross Media, which one analyst says is “materially undervalued” is fielding unsolicited approaches from several parties interested in its regional television assets.

While announcing a buyback of up to $40m, the company, headed up by Grant Blackley, said it had received approaches “from several parties indicating potential interest in acquiring SCA’s regional television assets’’.

“The approaches, which are non-binding and incomplete, do not include details of timing, price or conditions.

“There is no guarantee that any of these approaches will result in a transaction. With the assistance of its financial adviser, Grant Samuel, SCA will continue to assess strategic options for its television business, including engaging with interested parties regarding a potential sale, for the benefit of shareholders.’’

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Morningstar recently told its clients the company was “materially undervalued” against its $3.30 per share valuation.

The stock was up more than 8 per cent to $1.75 in early trade on Thursday.

Morningstar said two recent transactions in the media space - the sale of the Grant Broadcasters regional radio stable to HT&E for $308m and the prime regional TV assets to Seven for $72m, indicate the upside value of Southern Cross’s assets.

“Applying these deal multiples to Southern Cross’s regional radio and TV units, and 7.5 times for its metropolitan radio asset, we arrive at a sum-of-the-parts valuation of $2.95 per share,’’ Morningstar says.

“Even that is conservative as it capitalises the estimated $16m EBITDA losses from Southern Cross’s digital radio investment - a drag that will reduce as the venture builds scale.

“Excluding these ‘start-up’ losses, the implied valuation from using the transaction multiples would be $3.40 per share, in line with our discounted cash flow-derived $3.30 intrinsic assessment.

“Whichever way one cuts it, shares in Southern Cross seem undervalued.’’

Morningstar flagged the likelihood for a buyback in its report, released last week.

Morningstar said the company had a weak economic moat, with the proliferation of streaming services eroding the value of its licence to broadcast in Australian regional markets.

Southern Cross is one of only three licence holders in this sector, Morningstar says, but added that “the intangible power of this licence has declined to such an extent that its value has been written down considerably; thus it no longer acts as a barrier to competition’’.