Wilson Asset Management weekly: Nine Entertainment

Chris Stott

The S&P/ASX All Ordinaries Accumulation Index closed up 0.2% in February, an almost flat close to a turbulent month and leading into a weak start to March. Heightened volatility in early February arising from concerns over the prospect of accelerated interest rate rises faded as the month continued. A slightly positive reporting season provided Australian investors with some reassurance, however this week volatility re-emerged after comments from the new Federal Reserve Chairman Jerome Powell suggested that interest rate increases should be used to keep unemployment and inflation in balance. The first week of March closed down 0.9%.

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Last Thursday Nine Entertainment (ASX: NEC) announced its interim results, reporting earnings before interest, tax, depreciation and amortisation (EBITDA) of $181 million, up 51% on the prior corresponding period. We purchased shares in Nine Entertainment in WAM Capital, WAM Leaders, WAM Research and Century Australia last August at $1.30 per share following the Company’s full year results in August 2017. We saw an improvement in Nine’s ratings against Channel Seven and Channel Ten to drive earnings upgrades and we also believed that Nine's strong balance sheet positioned the company for capital management initiatives. In the past six months, Nine’s ratings have continued to surprise on the upside, with key shows such as Married at First Sight and Ninja Warrior driving the improvements. At Nine's half year result, the company provided earnings guidance, expecting FY18 EBITDA to be at the top end of the $237 million and $261 million range previously provided to analysts. Following Nine's interim results, we continue to believe that consensus forecasts are too low and expect that Nine will continue its strong ratings performance, driving earnings upgrades into the future. Shares in Nine closed up 8.7% for the week.


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