Kerry Stokes's Seven West Media warned last night that its full-year earnings could be up to $45 million below expectations, thanks to weaker than expected advertising markets.
Until yesterday Seven West had been bravely holding the line on its forecast that advertising conditions would improve in the final quarter.
The revelation throws another bone to the Reserve Bank governor, Glenn Stevens, for a drop in interest rates to give much-needed stimulus to the non-resources sectors.
Insider was told that the late release of the warning - that earnings before interest and tax this year are likely to land in the zone of $460 million to $470 million - was due to the tyranny of distance (the board was meeting in Perth) rather than an attempt to take the sting out of bad news by announcing it after most broker shops had shut ahead of today's Anzac Day holiday.
Seven West's announcement is likely to hit the share prices of most media stocks when trading resumes tomorrow, given that it reckoned the insipid advertising demand was across all areas of its business, television, magazines and newspapers.
After all, Seven has a TV market share slightly north of 40 per cent, so if the absence of advertisers is not driven by boredom with one too many repeats of How I Met Your Mother, the tough conditions will be exacerbated at competitors Nine Entertainment (already fighting with debt vultures) and the billionaire's playground, Ten Network.
According to Bloomberg figures, the consensus analyst estimates for Seven West's EBIT this financial year were $504 million before last night's statement. That is already a hefty drop from last year's $550 million.
WHITE KNIGHT
Western Australia's favourite billionaire, Andrew Forrest, has applied his Midas touch to Apex Minerals, turning it into a multi-billion dollar company overnight.
Sort of. While Forrest's private company has committed to taking options that would give him 20 per cent of Apex if exercised, it was the company's one-for-100 share consolidation to cut back its issued capital from a dizzying 16.6 billion shares that tricked Bloomberg's computers yesterday.
The technology managed to change the share price from 0.2? to 20?, but multiplied it into a market worth of $3.14 billion. A day earlier Salomon Smith Barney handled a line of 500 million Apex shares for a $1.3 million deal.
Still, perhaps there is now some hope for investors in Renison Consolidated, which really ought to live up to its name and cut its shares on issue from an absurd 20 billion. The value of the company, these days chasing gold in Queensland and coal in NSW, is $20 million.
TROUBLE IN STORE
If the Reserve Bank board member Roger Corbett was not busy enough this week working out how far to cut interest rates, he and the rest of the board at US retail giant Walmart now have to deal with a bribery scandal that has sliced $US10 billion off the company's value.
Corbett, who is also chairman of Insider's paymaster Fairfax Media, is understandably keeping mum on allegations that executives in Walmart's Mexican offshoot fuelled its new store program with $US24 million of bribes to secure building permits. Walmart de Mexico, 69 per cent owned by the US group, is separately listed in Mexico.
The bigger problem for Walmart would seem to be that it carried out its own internal investigation and is being accused of burying the results, neither removing those responsible nor telling police and other authorities until The New York Times published its investigation this week.
Corbett joined the board in 2006, whereas the questionable payments seem to have occurred back in 2005 and earlier. Another Australian, expatriate Armidale boy and one-time Coca-Cola chief, Doug Daft, joined the retailer in 2005.
The fall in the share price has already cost Corbett $US34,000 from his $US700,000 stake, while Daft is nearly $US90,000 down on his near-$US2 million investment.
The man likely to be in focus is their fellow director, Lee Scott jnr, who was Walmart's president and chief executive from 2000 to 2009 and is alleged to have known of the bribe claims.
The litigious nature of shareholders in the US could also mean that directors face a class action if the share price falls are sustained, or if this derails Walmart's other international expansion aims.
The timing is exquisite, coming only a week after the release of Walmart's proxy materials for its June 1 annual meeting - where, as usual, the whole board faces re-election.
ANZAC SPIRIT
Jacka Resources - named for Albert Jacka, Gallipoli hero and the first Australian winner of a Victoria Cross in World War I - has launched a successful assault on its best ever price this week. Although it suffered a small retreat of 0.5? yesterday, Jacka peaked at 23? on Monday - not just its best price level, but its $56 million market worth was easily the biggest value placed on the company since its 2010 listing.
The Africa-oriented oil and gas explorer has benefited from being run by executives from the successful Hardman Resources - and some positive recent broker research. D.J. Carmichael's Edwin Bulseco called it the most undervalued African explorer on the local market, and thinks the price ought to go to 51?. Paterson Securities' Alexis Clark, who penned his report before the shares really started running, opted for a more conservative 35?.
BOMBER SHAW
Speaking of strained connections with Anzac Day, recently-listed Ambassador Oil and Gas's "loyalty" offer of 47.35 million options, at 0.3? each, fell only 3.14 million short. Underwriter Peloton Capital has handballed the $9420 bill to the Melbourne property group Pellicano's funds management arm. The options are exercisable at 25? each before November 2013.
And the Gallipoli connection? Ambassador's chairman, David Shaw, is a former Australian Football League star, commissioner and president of the Essendon football club. His beloved Bombers take the field today against Collingwood in their traditional Anzac Day match.
Frequently Asked Questions about this Article…
What did Seven West Media warn about its full-year earnings and why should investors care?
Seven West Media warned its full-year earnings could be up to $45 million below expectations because advertising markets were weaker than expected. The company said EBIT is now likely to land in a $60–$70 million range, versus a Bloomberg consensus of $504 million and last year’s $550 million. Everyday investors should note this could signal softer advertising demand across TV, magazines and newspapers and increase downside risk for media-sector stocks.
How might Seven West’s earnings warning affect other Australian media stocks and advertising revenues?
Because Seven has a TV market share slightly north of 40%, the company said the advertising slowdown was broad-based across its businesses. That means competitors such as Nine Entertainment and Ten Network could also feel the pain, and media share prices are likely to be hit when trading resumes. For investors, a sector-wide advertising weakness can translate into lower revenues and higher stock volatility across media names.
Why was Seven West Media’s profit warning released late, and does timing matter to investors?
The article reports the late release was attributed to the ‘tyranny of distance’ — the board was meeting in Perth — rather than an attempt to time the announcement after broker shops shut for the Anzac Day holiday. For investors, notice timing matters because late announcements can surprise the market; understanding the reason helps assess whether it was logistical or strategic.
What happened at Apex Minerals and how did Andrew Forrest’s involvement change the stock story?
Andrew Forrest’s private company committed to taking options that would give him 20% of Apex if exercised. Apex also completed a one-for-100 share consolidation, cutting issued capital from 16.6 billion shares. A market-data glitch multiplied the post-consolidation price and briefly pushed the calculated market value to about $3.14 billion. Investors should be aware consolidations and large strategic option holdings can materially change float, perceived share price and market-cap calculations.
What does the article say about Renison Consolidated’s capital structure and investor implications?
Renison Consolidated was noted as having an ‘absurd’ 20 billion shares on issue and a market value of about $20 million. The article suggests there may be a case for a share consolidation to improve capital structure. For small-cap investors, extremely large share counts with low market value can depress per-share metrics and complicate liquidity and valuation.
What are the key facts about the Walmart bribery allegations and the potential impact on shareholders?
The article reports allegations that Walmart de Mexico used about $US24 million in bribes to secure building permits, and the scandal has sliced roughly $US10 billion off Walmart’s value. The company’s internal investigation is accused of burying results and delaying reports to authorities. Directors including Roger Corbett and Doug Daft have seen personal paper losses, and the story raises the risk of shareholder litigation or governance scrutiny — factors investors should watch closely.
Why did Jacka Resources’ share price rise and what are broker views on its upside?
Jacka Resources, an Africa-focused oil and gas explorer run by ex-Hardman Resources executives, hit a recent peak of 23c and a market value of about $56 million — its best since listing in 2010. Positive broker research helped the run: D.J. Carmichael set a 51c target while Paterson Securities was more conservative at 35c. Everyday investors should weigh broker targets, management track record and sector risks before acting.
What happened with Ambassador Oil & Gas’s loyalty options offer and who underwrote it?
Ambassador Oil & Gas launched a loyalty offer of 47.35 million options but fell about 3.14 million short of the target. Underwriter Peloton Capital ended up passing a $9,420 bill to Pellicano’s funds management arm. The options are exercisable at 25c each before November 2013. Investors should note shortfalls in entitlement offers and how underwriting arrangements are settled, as these can affect dilution and short-term capital needs.
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