APN shares hit record low after warning

After APN issued a profit warning the stock plunged, wiping about $33 million off its market value. The share price fell sharply when markets opened and closed about 15.9% lower at a new record low (26.5), making APN the worst-performing stock on the S&P/ASX200 that day.

APN said it expected net profit before exceptional items for the 2012 calendar year to be between $51 million and $54 million. That compares with $78 million of underlying net profit last year and represents a decline of up to about 34% if results print in line with guidance.

The company flagged weaker publishing revenues — publishing revenue was down about 10% since June — and said conditions in the second half of 2012 were more challenging, with advertising bookings extremely short. Those revenue pressures drove the profit warning.

APN's publishing units have achieved $25 million in cost savings this year, and the company expects to deliver a further $25 million in savings next year. Management says these savings have offset some, but not all, of the revenue decline.

Analysts moved quickly to reassess the stock. Morningstar’s Michael Higgins placed APN under review, lowered full-year profit estimates and raised the possibility of newspaper asset write-downs. CIMB analysts Fraser McLeish and Alan Stewart downgraded the stock to neutral.

Yes — Morningstar’s analyst noted the possibility that APN may need to write down the value of its newspapers given the challenging trading conditions and weaker revenue outlook.

CIMB analysts suggested that Fairfax Media (FXJ) and Seven West Media (SWM) offer less risky ways to gain exposure to the media sector at the current time, compared with APN.

Investors should watch short advertising bookings and ongoing publishing revenue declines, potential asset write-downs, further analyst downgrades, and continued share price volatility — all factors highlighted by APN’s recent profit warning and subsequent analyst commentary.