##{"id":60299,"date":"2012-07-23T12:24:18","date_gmt":"2012-07-23T02:24:18","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/07\/23\/tens-problems-more-than-meet-the-eye\/"},"modified":"2012-07-23T12:24:18","modified_gmt":"2012-07-23T02:24:18","slug":"tens-problems-more-than-meet-the-eye","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/07\/23\/tens-problems-more-than-meet-the-eye\/","title":{"rendered":"Ten’s Problems More Than Meet The Eye"},"content":{"rendered":"

\n\t – Ten sells Eye outdoor business
\n\t – Brokers see price as reasonable
\n\t – Proceeds ease balance sheet constraints
\n\t – Weak TV ratings, valuation remain issues <\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tTen Network ((TEN)) has announced the sale of Eye Corp, its outdoor business, to Outdoor Media Operations, which is controlled by Champ Private Equity, for $145 million. The proceeds consist of $120 million in cash up-front and a further $25 million payable in three years. Ten will retain some onerous contracts totalling<\/span> around $16 million.<\/p>\n

\n\tFor JP Morgan the sale price is a reasonable outcome, as based on recent multiples within the outdoor sector and mid-cycle earnings for Eye Corp of around $16 million in EBITDA (earnings before interest, tax, depreciation and amortisation<\/span>) terms the broker's implied valuation for the business is $120-$130 million. RBS<\/span> Australia agrees the price achieved is reasonable.<\/p>\n

\n\tThe sale should be slightly earnings accretive for Ten, UBS estimating earnings per share (EPS) in FY13<\/span> should be boosted by around 0.8% if the sale is completed. More importantly, the deal allows Ten Network to alleviate some existing balance sheet pressures. <\/p>\n

\n\tOn UBS's numbers, the Eye sale should see Ten's net debt to EBITDA ratio falling to 1.8 times from 2.6 times previously. This compares favourably<\/span> to others in the sector, UBS noting similar ratios stand at 1.9 times for Fairfax ((FXJ<\/span>)), 2.8 times for Southern Cross Media ((SXL<\/span>)) and 2.7 times for Seven West Media ((SWM<\/span>)).<\/p>\n

\n\tAs RBS<\/span> points out, the sale will relieve any lingering uncertainty on Ten's capital structure. The deal is also timely, as UBS notes Ten will need to refinance $210 million in corporate bonds by March of next year. <\/p>\n

\n\tThe other point of note for UBS is the transaction will improve Ten's ability to invest in TV content, which is needed to boost ratings. RBS<\/span> agrees but remains cautious, noting there are few easily identifiable near-term catalysts given ongoing ad market weakness and ratings weakness for the network. This has Ten poorly positioned going into 2013 rate negotiations.<\/p>\n

\n\tJP Morgan also picks up on this, suggesting any potential recovery in revenues is unlikely until at least the middle of next year. As a reflection of this and the sale, JP Morgan has cut its revenue growth forecasts. <\/p>\n

\n\tThis translates to adjustments to EPS expectations, consensus EPS estimates for Ten Network according to the FNArena<\/span> database now standing at 1.7c for FY12<\/span> and 2.6c for FY13<\/span>. Price targets have been adjusted accordingly, the consensus target according to the database now at $0.56, down from $0.585 previously. Aside from Credit Suisse, who has yet to adjust its model for the transaction, targets for Ten range from BA Merrill Lynch at $0.25 to Citi<\/span> at $0.48.<\/p>\n

\n\tFactoring in the sale, valuation remains an issue for Ten in the view of RBS<\/span>. On its numbers Ten is more expensive than the likes of Seven West and Southern Cross on an enterprise value\/EBITDA basis, meaning it is not the preferred way of gaining exposure to the TV sector in the broker's view. <\/p>\n

\n\tRBS<\/span> continues to rate Ten as a Sell. UBS is similarly negative, reflecting its view Ten is the most operationally leveraged stock in the Australian TV sector. As an example, UBS estimates a downgrade to its FY12<\/span> TV growth rate to 12% would deliver a 21% cut to FY12<\/span> EPS expectations.<\/p>\n

\n\tThe FNArena<\/span> database shows total ratings for Ten of one Buy from Credit Suisse, three Hold ratings and four Sell recommendations. Citi<\/span> is among the Neutral ratings, the broker taking the view any turnaround at Ten remains a longer-term proposition given tough market conditions. Macquarie agrees, suggesting any boost from a new programming strategy is likely to need a 1-3 year window to gain traction.<\/p>\n

\n\tShares in Ten today are down in a weaker overall market and as at 12.00pm the stock was 2c<\/span> lower at $0.495. This compares to a trading range over the past year of $0.46 to $1.135. <\/p>\n

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\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"