Seven West Media share price target cut after cricket deal

UBS cuts price target on Seven West Media shares to reflect a higher TV cost base, after it seized cricket rights from Nine.

Seven West Media CEO Tim Worner, left, with Cricket Australia CEO James Sutherland and Fox Sports CEO Patrick Delaney after the TV deal. Pic: AAP

Swapping cricket for tennis could reduce Nine Network’s summer sport losses by tens of millions of dollars, according to a Citi analysis.

The network, which has ended its 40-year association with cricket, had been making a $50m-a-year loss on the game, but is expected to carry annual losses of $20m-$30m when it starts broadcasting the tennis from 2020.

“Nine’s losses will be lower,” Citi analyst David Kaynes said in a client note.

“However, they will need to replace the cricket with other content given the tennis will have less broadcast hours.”

Meanwhile, UBS has reduced its price target on Seven West Media shares to reflect the network’s higher television cost base, after the company seized Cricket Australia’s media rights for internationals and the Big Bash League in a partnership with Foxtel.

Seven’s cost base should increase by $35m, Kaynes wrote, although Seven “will have a lot more hours of premium sports content to broadcast throughout the summer”.

Both summer sports are loss leaders for the networks that broadcast them, and are used as a platform to launch their programming slates for the year.

The pay-off for Foxtel, which is spending $630m on simulcast rights over six years, would depend on whether the pay television company - majority owned by News Corp, publisher of The Australian - could “leverage” the cricket into stronger subscription growth, Kaynes said.

Seven (SWM) announced on Friday it will pay about $75m a year from 2018-2024 to simulcast 43 of the 59 Big Bash matches and all home international tests with Foxtel.

It won’t have the one-day internationals, the international T20 matches or the digital rights, which will be held by Foxtel.

UBS analysts said they anticipated a revenue share shift from Nine Entertainment and the Ten Network to Seven, as well as a shift in costs.

But the investment bank said it anticipated slower metro television market growth in fiscal 2019.

“Historically, metro free-to-air TV has grown at about 3 per cent per annum,” analysts said.

“Going forward we factor only 2 per cent metro FTA market growth, as free-to-air TV will increasingly compete for the same eyeballs and revenues with new mediums.

“In addition the print businesses continue to face structural headwinds.”

UBS analysts said that while share momentum was currently in Nine’s favour, they forecast a relatively even market share between Nine and Seven in the long term.

“Over the last 20 years, Seven West Media has been number one in share 11 times, and Nine Entertainment nine times.

“We therefore assume relatively even market shares for Seven and Nine in the long term about 39 per cent.”

UBS maintained its neutral recommendation on the stock, which has been unchanged since mid-2015.

“Despite industry headwinds, we are neutral on Seven West Media based on valuation,” analysts said.

“Concerns remain over the muted structural outlook for the TV sector, market share risk and gearing.”