Morning Equity Briefing
Independent News & Media
(INM ID)
Delivering on guidance; upgrading 2010 earnings but leaving 2011 forecasts unchanged
Simon McGrotty
| Closing Price: | 65c | Rating: | Outperform | 29/03/10 | Previous: | Neutral | 30/06/09 |
The first-half results of Independent News & Media (INM) showed that the group performed well, growing profitability in all divisions despite top-line declines in Ireland and South Africa. Revenue came in at €656.5m, representing growth of 8% year-on-year (yoy) or 1% on a like-for-like (lfl) basis. EBIT grew 29.2% to €94.6m (12.7% lfl), with effective cost-cutting more than offsetting top-line declines.
The National Newspapers of Ireland reports a first-half advertising rate decline of 10%. This compares with a Q1 decline of 15%, resulting in the Q2 fall slowing to 4%. Recent guidance from other media companies in Ireland reinforces this trend. INM is targeting a full-year decline in Irish advertising rates of c.10%, but this could prove conservative.
We are upgrading our 2010 EBITDA forecasts by €13.7m to €264.9m, driven by the good momentum in cost savings evident from the first half. Net debt/EBITDA currently stands at 4.1x on a pro-forma basis. We are forecasting this to decline to 3.6x by year-end, falling below 3.0x in 2012. While the company trades on 6.9x 2010 EBITDA, on a sum-of-the-parts basis the current market price of €0.66 would imply a multiple of 5.7x for the core group. We estimate a fair value for the stock of €0.92, representing 39% upside from current levels. We reiterate our 'outperform' rating.
For further detail, see our research report issued this morning.