MARKETS SPECTATOR: Ten potential, Brambles care

Ten Network

Morgan Stanley believes Ten Network's current share price represents a "call option” on an improvement in the TV advertising market and Channel Ten's market share.

Ten shares dived 5.37 per cent lower to 25.5 cents at the opening of trade today – against a benchmark index lift of 0.16 per cent – following the stock's release from a trading halt due to a capital raising.

In earlier trade, Ten shares fell as low as 23.5 cents.

Following the recent capital raising, the broker still recommends Ten Network as an outperform and has lowered its target price to 50 cents, which still represents significant upside from the last traded price.

"If the perception is you have a problem with your balance sheet … then you do. We think the decision to raise $230 million equity, putting the company in the position of net cash $45 million, makes both financial and strategic sense,” Morgan Stanley said.

"Characteristic of all TV broadcasters, the operating leverage in Ten is very significant, e.g. for a 100 basis point change in ad market share there is $20 to 30 million change in EBITDA and around a 30 per cent change in EPS”.

Morgan Stanley believes that during a period when the company is attempting a major turnaround in its programming strategy/ratings it doesn't make sense to amplify that volatility with extra financial leverage.

After adjusting estimates and valuations following the capital raising, and while they remain bearish on the whole media sector, the broker is of the view that when conditions within the sector improve, they expect Ten Network to be an outperformer.

Brambles

Goldman Sachs has downgraded its recommendation on Brambles to neutral from buy as there is now limited upside due to recent share price appreciation.

While the broker sees Brambles as relatively defensive versus its industrials coverage, it has lowered some of its estimates given the resilience of the Australian dollar and a softer outlook across Europe.

Nonetheless, it still sees a return of around 12 per cent based on its upwardly revised target price of $8.07.