What is going on at Kerry Stokes’ 41% owned Seven West Media? There are some very mixed up messages coming out of the embattled broadcaster and newspaper owner. In fact, based on what slipped out on Monday in Perth it looks more like a proprietor-driven domination of the WA media than anything sensible.
Investors thought so little of the company’s buyout of News Corp from a local newspaper business in Perth that they tossed up their hands and sold the shares down more than 5% on Monday to 50.5 cents.
That was a loss of more than $40 million in market value, which is probably more than what Seven West paid News to exit Community News (the amount was not revealed) and its 23 titles in and around Perth.
On Tuesday though investors recovered their confidence and lifted the shares back to 53 cents, wiping out most of Monday’s loss.
Monday’s news was a surprise to the market and contrary to the cost-cutting, debt reduction, no dividend mantra that has been coming from Seven West Media for more than a year now.
Adding to the surprise was the timing – less than a week after the expected downgrade from Seven West in its 2018-19 earnings. To many investors, it’s a case of do what we do and not we say we are going to do and that is no way to maintain trust in the current febrile market for legacy media stocks.
Last week Seven West Media sliced millions of dollars off its 2018-19 earnings guidance – instead of a rise of 5% to 10% in underlying profit it is now looking for a fall of at least 10% and possibly more as advertising and print revenues continue to weaken while its own ratings performance at the start of 2019 has been subpar as rival Nine has outperformed it.
The sharp fall in the share price on Monday came after a story appeared on the West Australian newspaper’s website revealing that Seven West will buy the 50.1% of Community News in Perth owned by News Corp.
In 2016 Seven West Media bought the Sunday Times and Perth Now website from News Corp for around $18 million. Nearly 40 Sunday Times staff were made redundant at the time and more went in 2017. A further 32 left in April including some big names, and now the company is going deeper into what is a vanishing business model.
The Community purchase on top of the Sunday Times and Perth Now deals will give Stokes domination of the WA newspaper sector, and with Seven’s dominant TV station makes Stokes the only ‘voice’ that matters in the state.
But that influences is waning by the week as TV viewing is eroded by the growth in streaming services such as Netflix and newspaper sales shrink weekly. This paragraph sums up the reason for the move – note the use of the word ‘domination’.
“The acquisition cements SWM’s domination of print media in WA. Community News’ 23 titles, which include Western Suburbs Weekly, Joondalup Times, Fremantle Gazette and The Advocate, will be added to Seven West’s existing stable of The West Australian, The Sunday Times, The Kalgoorlie Miner, Countryman and more than a dozen regional titles covering the length and breadth of the State.”