Declining Broadcast Revenues And Soaring Legacy Costs Will Hamper Outlook

Key Takeaways

• Declining traditional advertising and shifting audience habits threaten revenue growth, while digital gains are insufficient to offset structural declines.
  
• High operating costs, strong global competitors, and tougher regulations will squeeze margins and hinder long-term earnings recovery.
  
• Strong digital growth, market leadership, accretive acquisitions, innovative data solutions, and disciplined cost management position the company for sustained revenue expansion and earnings resilience.

Catalysts

Engages in the free to air television broadcasting and digital streaming in Australia and internationally.

• The accelerating migration of advertising budgets toward global digital platforms, combined with persistent declines in traditional TV advertising revenues, will further erode Seven West Media's core revenue streams over the long term, undermining group revenue growth despite short-term digital gains from 7plus.
  
• Increasingly fragmented media consumption among younger audiences, who favour global on-demand streaming over local broadcast content, will make it difficult for Seven West Media to maintain or grow audience share, driving a structural decline in ratings and depressing future advertising revenue.
  
• High fixed costs tied to legacy broadcast infrastructure and escalating sports rights expenses for contracts such as the AFL and cricket will outpace any digital monetisation improvements, resulting in sustained downward pressure on group margins and EBITDA.
  
• Seven West Media faces intensifying competition from global tech giants with superior data-driven advertising platforms, limiting its ability to capture incremental digital ad spend and leading to structurally lower net margins and weaker returns on invested capital.
  
• Industry consolidation and rising regulatory scrutiny, coupled with a slower pace of innovation compared to global peers, will diminish Seven West Media's bargaining power, increase compliance costs, and contribute to ongoing earnings stagnation over the next several years.

Seven West Media Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Seven West Media compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Seven West Media's revenue will decrease by 0.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.2% today to 1.4% in 3 years time.
• The bearish analysts expect earnings to reach A$19.8 million (and earnings per share of A$0.01) by about August 2028, up from A$16.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from 13.4x today. This future PE is lower than the current PE for the AU Media industry at 19.7x.
• Analysts expect the number of shares outstanding to grow by 1.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.91%, as per the Simply Wall St company report.

Seven West Media Future Earnings Per Share Growth

Risks

• Sustained growth in 7plus, with a 26 percent revenue increase across the year and 41 percent in the second half, combined with a 27 percent rise in daily active users and 41 percent growth in streaming minutes, demonstrates scalable digital engagement that could drive long-term revenue expansion.
  
• Seven West Media continues to grow its share of the total TV advertising market for the fifth year in a row, up 0.2 points to 40.4 percent, indicating successful audience retention and competitive positioning, which can support top-line revenue growth and advertising rates.
  
• The acquisition of Southern Cross Media's television licenses positions Seven West Media as the largest commercial regional broadcaster in Australia, generating immediate earnings accretion and creating opportunities for both revenue synergies and cost efficiencies, likely boosting overall group earnings.
  
• The rollout of Streamscape, offering consolidated and independent viewership data across all video platforms, enhances advertiser confidence in TV as a dominant and effective advertising channel, potentially attracting higher ad spend and supporting net margins.
  
• Disciplined cost management, further supported by automation, legacy contract optimization, and a $35 million cost-out program, alongside a temporary $15 million spectrum tax saving, strengthens free cash flow and margin resilience, thereby enhancing the company's ability to withstand cyclical challenges and improve earnings over time.

Valuation

• The assumed bearish price target for Seven West Media is A$0.13, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Seven West Media's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.3, and the most bearish reporting a price target of just A$0.13.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$1.4 billion, earnings will come to A$19.8 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of A$0.14, the bearish analyst price target of A$0.13 is 11.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.