This time it’s different: NZME optimistic after solid first half result

While media company NZME is starting to see some impact on advertising due to the latest nationwide lockdown, chief executive Michael Boggs says the overall disruption is markedly different to what he saw 16 months ago.

“I think it’s quite different to what we were seeing when we went into this back in March and April last year, because back then it was such an unknown to people,” Boggs said following the company’s half-year result today.

“Back then we immediately saw people cancelling their bookings and their advertising campaigns. While we are seeing some of that now, most of it is really a deferral, maybe pushing to next month in a wait and see approach, if they are being moved at all.

“So I think it’s quite a different mentality with people more used to what’s happening, and we can come out the other side of this into a positive space, which is good for everyone.”

Of course, much depends on the duration of this current hard lockdown but at this stage NZME remains confident of continuing to see positive growth for the overall business.
And that includes new revenue streams such as digital subscriptions for the NZ Herald Premium service and from real estate platform OneRoof.

NZME today reported operating earnings of $30.1 million for the six months to June 30 – up 4 per cent on the same period a year ago. Net profit jumped 85 per cent to $5.56m on revenue of $172.28m.

NZME, which owns the New Zealand Herald, Newstalk ZB, OneRoof and a suite of entertainment radio station, was able to declare an interim dividend of 3c per share to be paid in September – the first such return since the 2018 financial year.

Chairman Barbara Chapman noted cautious optimism in her outlook statement despite further disruption to the business caused by level 4 lockdown.

“We should all be under no illusions that ongoing Covid-19 related issues, such as the nationwide lockdown currently in place, will continue to impact the recovery,’ she said.

“However, it is in this environment that the NZME business has proven it has the resilience and agility to perform well.”

Arie Dekker, an analyst who covers the stock for Jarden, said his first impression of the result was positive.

“While questions around what an extended period of time in level 4 will mean for [second half] results need to be addressed, that shouldn’t overshadow delivery of a very solid result with resumption of dividend … on another strong period of free cash flow delivery.”

Also notable in the result announcement was the sale of NZME’s GrabOne business to Global Marketplace New Zealand for $17.5m.

The deal is expected to be settled by the end of October and under normal circumstances would have seen a capital return to shareholders, given net debt now sits at $18.6m (down by $15.2m on the previous corresponding period).

The company has decided to hold off on any return to shareholders from that transaction due to the Covid-19 uncertainty at the moment.

Dekker said his key takeaways were third quarter advertising was tracking in line with same period 2019 prior to the recent level 4 restrictions, total reader revenue was up 3 per cent on first half 2020 and OneRoof revenue was up 30 per cent albeit on a Covid-impacted previous corresponding period.

“While the market will need to look through a period of Covid-related disruption, we think the 1H21 result was very encouraging and the fundamentals for the business look solid,” Dekker said.

“The market should take some comfort from NZME’s ability to respond to the 1H20 Covid disruption as well as it has.”

NZME shares recently traded at 95c, up 2.15 per cent on Monday’s close with the stock up 216 per cent over the past 52 weeks.

Stronger balance sheet

Boggs said the company had no immediate need to apply for the Covid-19 2021 wage subsidy.

The company received $8.6m in wage subsidies in the April 2020 round.

“We are not seeing any need right at the moment. Obviously, we are only a week into lockdown. But we are seeing significant behaviour differences from advertisers this time … there is more certainty.”

NZME said in the first three months of this year, advertising revenue was 5.5 per cent down on 2019, but in the second quarter it was down just 1 per cent on the same quarter in 2019. The June month was higher than June 2019.

On last year’s wage subsidy, Boggs said: “It did exactly what it was supposed to do. It saved jobs, got us through times when we had nearly 50 per cent reduction in revenues and significant uncertainty. So, like many businesses, it did just what it was supposed to.”

Another result highlight was the growth of the NZ Herald Premium journalism service – there are now 120,000 digital subscribers, including 67,000 digital-only subscribers and 53,000 print subscribers who have activated digital access.

“We’re really pleased with what we are seeing across each of the divisions we’ve got,” Boggs said. “We are really pleased with the great content that’s being produced by our teams our audiences are really engaging.

“On the basis of the trends we’ve seen to date, as long as we contain these outbreaks quickly, we would expect profit growth over 2020 for this year.”

Boggs hinted at possible acquisitions, although nothing was currently on the table.

“Our business is significantly stronger than it was a couple of years ago and to be delivering a result that’s showing profit growth year-on-year in the sort of environments we are operating in we are really pleased with.

“We will continue to look for opportunities for acquisitions if they make sense as art of our strategy and having such a strong balance sheet now makes that much easier to achieve.

“There’s always small things that come available and we continue to evaluate those. But nothing to talk about.”

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