PBL Media value slashed to zero

PBL Media - the private-equity-controlled company that houses the Packer family's one-time flagship media assets, the Nine Network and ACP Magazines - has been valued at zero in a report by one of the country's top media analysts.

PBL Media - the private-equity-controlled company that houses the Packer family's one-time flagship media assets, the Nine Network and ACP Magazines - has been valued at zero in a report by one of the country's top media analysts.

A June broker's report by ABN AMRO media analyst Fraser McLeish contains the zero valuation. The analyst also reduces his earnings forecasts for PBL Media to "reflect industry feedback that the television advertising market has weakened significantly in the last few weeks".

PBL Media is 75 per cent-owned by private equity firm CVC Asia-Pacific and 25 per cent-owned by James Packer's Consolidated Media Holdings.

The report confirms the Packer family's knack for selling media assets at the peak of their valuation. Mr Packer progressively offloaded most of the business in rosier times over the past two years. Mr McLeish's bearish call represents a dramatic contrast to the effective $5.6 billion enterprise value slapped on the company less than two years ago, when CVC led PBL Media's October 2006 privatisation.

This original value for PBL Media included about $3.6 billion in debt and $2 billion in equity.

In an analysis of ConsMedia's value following Lachlan Murdoch's collapsed bid to privatise the group, Mr McLeish said much of PBL Media's $2 billion equity value had evaporated.

Mr McLeish said his latest valuation of ConsMedia included "PBL Media at zero due to weak operating metrics, high debt and minimal visibility".

Mr Packer has had a hands-off approach to PBL Media. Most decisions have been made by CVC's Australian operations head, Adrian MacKenzie, and PBL Media boss Ian Law.

In the 20 months since CVC bought in, PBL Media's debt has risen even further on its already high levels to $4.2 billion, after CVC splashed out $600 million for assets including Ticketek and regional TV network NBN.

It is understood the liabilities now include $3.5 billion of senior debt and $700 million of mezzanine debt. Mr McLeish appeared unimpressed by PBL Media's assets in the face of such debt and tough advertising market conditions: "In the absence of a takeover offer, we only see reason to buy ConsMedia if PBL Media is in the share price for free."

His report has come as bearishness grows at broking houses about the value of the highly geared PBL Media in an uncertain advertising and economic outlook. Christian Guerra, media analyst at Goldman Sachs JBWere, has put a discounted cash flow valuation of just $252 million on PBL Media. This figure is a fraction of the equity that CVC has put into the business.

Mr Guerra has only been marginally less bearish than Mr McLeish about Nine's prospects amid the advertising revenue gloom, pointing to the Ten Network's 10 per cent profit downgrade earlier this month.

Historically, the free-to-air television advertising market "tends to lag the economic cycle. However, the announcement from Ten suggests the ad market is slowing faster than we, and the market, anticipated."

Mr Murdoch's initial bid for ConsMedia with San Francisco-based investor SPO Partners and Co fell apart in March, amid suggestions SPO was discouraged by low operational returns and limited prospects for improving them at Nine, and PBL Media's high debt. An informed source at the time said: "The Nine due diligence process might have scared them."

For the December 2007 half, Nine's share of the $1.6 billion in total television advertising revenue in capital cities fell to an all-time low of 30.81 per cent, remarkably placing the country's long-term top network last among its commercial rivals.

While the network's on-air popularity has improved since, Mr McLeish doubts this will immediately translate into revenue, particularly in a dramatically weakening ad market.

"Nine's ratings have improved, but we don't expect this to translate into revenue share in any meaningful way until 2009," he said.

He has also raised doubts about the company's huge debt.

"We estimate that PBL Media's interest cover will be just 1.1 times (in the 2008-09 financial year), raising potential financing risks," he said.