Seven Group results a warning on media value

Kerry Stokes as a “canary”? It’s an image hard to conjure up but in keeping with that bird’s reputation as being an early warning system for coal miners in the 1800s.

Stokes’ main company has issued a new warning on the value of legacy media assets such as TV networks, magazines and newspapers — and it’s something the rest of the industry will have to heed in the next 12 months.

Kerry Stokes’ main company, Seven Group Holdings, put legacy media in this country on notice on Wednesday morning by slashing the already deeply written-down value of its holding in the underperforming Seven West Media by $225 million to $334 million.

In doing so, Stokes and his son Ryan (the family controls more than 60% of Seven Group Holdings) are saying there will be no future growth in Australian broadcast TV, magazines and print, which are now dying industries.

It’s a warning to rivals Nine and News Corp that the value of their legacy assets — TV licences, newspaper mastheads and pay TV licences and brand names — are falling in value. Seven Group’s 41% holding in Seven West Media is now valued at $334 million (the company is worth, at the close of the ASX on Tuesday, $852 million, or 52 cents a share). Wednesday’s cut in the value of its Seven shares by the Stokes family’s key company tells investors and others that they do not see the share price moving much higher in the future.

That $852 million valuation compares to the $4.1 billion back in 2011 when the company was created from the merger of Seven Network and West Australian Newspapers — a deal done at the urging and strong support of Kerry Stokes, who was the biggest shareholder in both companies. Seven Group’s slashing of the value of its Seven West Media holding is further confirmation that media mergers and deals in this country destroy value. So much for the moves by Labor and Coalition governments to allow mergers over the years. They have done nothing but blow up shareholder values and allowed the likes of Stokes and Murdoch greater control of what is admittedly a set of assets falling in value.

Seven West’s December half-year results on Tuesday were weak. TV and newspaper and magazine advertising and circulation revenues fell. So did profit. Net profit after tax fell to $85.8 million. The outlook is now very different for the next six months than the one given to the annual meeting in November (little or no growth in earnings, low ad revenues, even after the boosts from the NSW and federal elections) and continuing declines in newspaper and magazine sales.

It’s no wonder Seven is again not paying a dividend. With no income at all and faced with no growth and an increasingly sceptical major shareholder, you have to start wondering how long can Seven continue to exist in its current form. Cost cuts have been doubled to at least $40 million and much of that will happen in the next few months, so stand by for more stories of job cuts at the company in TV, magazines and in Perth at The West.

Even though Seven boasted that it had cut net debt, gross debt (that is debt actually owed to the banks) remains at a terrifyingly high $688 million. With its biggest shareholder slashing the value of its shareholding, the Seven West board itself (which includes Kerry and Ryan Stokes) will be under pressure to look at writing down the value of its assets at the end of the financial year in June. Directors previously looked at such a move in the December half, but didn’t act.