General | Feb 04 2006
SB Citigroup has not beaten around the bush when assessing Fairfax’s (FXJ) purchase of New Zealand on-line auction site, TradeMe. The analysts suggest investors “have been broadly astonished” at the multiple paid.
Citi suggests the ubiquitous TradeMe may have extraordinary brand strength in NZ, but its business is approaching maturity. If Fairfax is to derive any benefit, and credibility, then it will have to be based on horizontal expansion into other categories.
Watching with interest will be APN News & Media (APN), which dominates the print classifieds market in Auckland and which also has on-line aspirations. Citi suggests success for Fairfax would “cut to the heart” of APN’s business.
With the NZ ad market looking resilient, Citi has upgraded NZ publishing estimates, but this has been lost to revaluation based on the lower NZD/AUD. Although a lower currency meant Fairfax paid a bit less for TradeMe, UBS notes every 5% decline in the rate shaves 2.8% off Fairfax’s earnings.
UBS rates Fairfax as Neutral, with a $4.40 target, while Citi is less keen with Sell ($3.65). Citi is sceptical about media deregulation.
Fairfax closed yesterday at $4.01.
