Company Reports

The impact of covid-19 on Southern Cross was material, given the financial pressure that most advertising clients were under. But with the AUD 169 million capital raising in April 2020, Southern Cross' balance sheet was sufficiently replenished to weather the storm. This has been augmented by management's heightened cost and cash flow discipline.

The impact of covid-19 on Southern Cross was material, given the financial pressure that most advertising clients were under. But with the AUD 169 million capital raising in April 2020, Southern Cross' balance sheet was sufficiently replenished to weather the storm. This has been augmented by management's heightened cost and cash flow discipline.

Southern Cross' rejection of ARN Media and Anchorage Capital's takeover proposal is unsurprising. Management is grappling with how to value the reconstituted ARN Media under the deal, of which Southern Cross shareholders will own 33%. Due diligence and information exchange between the parties to date have failed to provide any clarity and are muddying the picture even more. Meanwhile, long-suffering shareholders of Southern Cross are agitating for action, any action, to engage with the suitors and realize value. Under these circumstances, we believe Southern Cross had no choice but to formally reject the proposal in the first instance.

The impact of covid-19 on Southern Cross was material, given the financial pressure that most advertising clients were under. But with the AUD 169 million capital raising in April 2020, Southern Cross' balance sheet was sufficiently replenished to weather the storm. This has been augmented by management's heightened cost and cash flow discipline.

The 30% slump in Southern Cross' fiscal 2024 first-half underlying EBITDA to AUD 31 million was disappointing. While wider advertising market malaise was a key culprit, persistent cost growth was jarring, with non-revenue-related expenses up another 5% to AUD 160 million. It could have been worse if not for the AUD 5 million cost reduction realized in the period to offset wage growth.

The impact of COVID-19 on Southern Cross was material, given the financial pressure that most advertising clients were under. But with the AUD 169 million capital raising in April 2020, Southern Cross' balance sheet was sufficiently replenished to weather the storm. This has been augmented by management's heightened cost and cash flow discipline. In fact, net debt/EBITDA has reduced significantly, to just 1.5 by the end of June 2023.

Shareholders in Southern Cross Media have the right to be bewildered. Since the receipt of a nonbinding takeover offer from ARN Media on Oct. 18, activities and speculations have degenerated to farcical levels.

No-moat-rated Southern Cross Media's nonbinding indicative proposal from ARN Media is too cheap. While the proposal represents a 29% premium compared with the price prior to the approach on Oct. 17, 2023, it is 45% below our unchanged fair value estimate of AUD 1.70 per share. We think the takeover bid is opportunistic, capitalizing on weakness in both regional TV and digital audio segments.

Southern Cross' 12%, or AUD 8 million, lift in fiscal 2021 first-half EBITDA to AUD 75 million was boosted by AUD 35 million in government support (mainly Jobkeeper). Still, the AUD 28 million reduction in underlying EBITDA was a commendable result, given the AUD 49 million COVID-induced fall in revenue to AUD 259 million (down 16%).

The impact of coronavirus on Southern Cross is severe, given the financial pressure that most advertising clients are under. When jobs are at risk and corporate survival is the foremost concern, advertising and marketing expenditures are increasingly becoming first thoughts in cost-cutting terms and an afterthought in strategy terms. With the AUD 169 million capital raising in April 2020, we believe Southern Cross' balance sheet has been sufficiently restored to weather the storm. This is augmented by management's heightened cost and cash flow discipline. In fact, net debt/EBITDA has been reduced substantially, to just 0.6 by the end of December 2020.

The impact of coronavirus on Southern Cross is severe, given the financial pressure that most advertising clients are under. When jobs are at risk and corporate survival is the foremost concern, advertising and marketing expenditures are increasingly becoming first thoughts in cost-cutting terms and an afterthought in strategy terms. With the AUD 169 million capital raising in April 2020, we believe Southern Cross' balance sheet has been sufficiently restored to weather the storm. This is augmented by management's heightened cost and cash flow discipline.