New Zealand has been somewhat of a dangerous media asset hunting ground for companies, Morningstar analyst Brian Han says.
Writing in a review of Southern Cross Media Group, Mr Han said it had been no secret Southern Cross media wanted to expand into New Zealand.
He was encouraged by recent press reports suggesting the no-moat-rated firm had terminated its interest in the radio assets of Mediaworks, the owner of half of New Zealand’s commercial radio stations, as well as substantial free-to-air television assets.
"We appreciate management’s desire to grow and its confidence to operate a bunch of regional-type radio stations in New Zealand. However, history plainly shows growth is elusive in the Shaky Isles."
Morningstar preferred South Cross to maintain focus on its Australian assets, consisting of its undisputed market leadership in the structurally resilient radio industry and a portfolio of affiliate regional television stations leveraged to the buoyant ratings of Nine Network, he said.
It was on that basis Morningstar maintained its long-held $A1.20 ($NZ1.31) fair-value estimate. Shares in the group were trading broadly in line with that value.
Mr Han detailed some of the difficult New Zealand media deals seen in the past decade.
In 2001, APN News and Media bought Wilson and Horton (publisher of The New Zealand Herald and other newspapers) for $1.5billion only to see the unit’s operating profit fall from about $150million at that time to about $60million now.
Similarly, in 2003, Fairfax outlaid $1.2billion for Independent Newspapers (publisher of The Dominion Post and other newspapers) only to see the operating profit plunge to below $60million from more than $120million at the time of the purchase.
"We will not even bother detailing the trouble Prime Television had with a Kiwi TV network — now owned by Sky Network Television — in the early 2000s, or the pain currently being suffered by Oaktree Capital Management with its ownership of struggling Mediaworks."
Mr Han said it was worthwhile elaborating on the favourable business mix of Southern Cross.
The radio industry had shown resilience in the face of digital disruption. In listening terms, it had proven to be "sticky".
The 2017 GFK Share of Audio report showed Australian live radio accounted for 65.3% of time spent by Australians listening to audio, up from 64.8% in 2016.
In comparison, 12.6% of Australians spent time on owned music, down from 13%, and 11% on streaming applications, up from 9.2%.
Actual time spent listening to live radio also held firm at 130 minutes a day last year, down slightly from 2016.
Radio had maintained a "remarkably consistent" 8% share of the Australian advertising pie since 1997, he said.
In the radio market, Southern Cross commanded a 29.1% share of metropolitan radio advertising and nearly 50% share of the regional advertising market, market shares Mr Han said he expected the group to maintain in the future.
"In fact, we estimate the group to generate around three-quarters of its profit from radio in fiscal 2018."
