In a further sign of the decline of decline Kerry Stokes’ Seven West Media, the company will be dropped from the most important investment measure in the country — the key ASX 200 index — later this month, according to the index’s compiler S&P.
The move will see shareholders who invest passively by hugging the ASX 200 sell Seven West shares and invest elsewhere (such as in Austal, the Perth based ship builder which is being installed on the index at the same time).
The decision follows continuing weakness in the Seven West share price this year. It closed at 48 cents on Thursday, down 2% on the day and close to the all-time low of 47.2 cents which hit earlier this year. Alongside Seven West, two other stocks will be dropped: education group Navitas and miner Syrah Resources.
At 48 cents the company was valued at just on $724 million. That’s a long way from the $4.1 billion valuation in 2011 when the company was created by Stokes, who merged Seven Network into West Australian Newspapers. Since then the slide in the shares has been remorseless as billions of dollars in value was written-off its TV, newspaper and magazine assets. That’s despite the company building a print monopoly in Perth; buying out the Murdoch clan’s newspaper interests in The Sunday Times and Community Newspapers.
Seven West’s shares are down 12% so far this year and 42% in the past 12 months, meaning that when 2018-19 financial year ends the stock will be among the biggest losers on the ASX.
Stokes’ 41% stake in Seven West Media is held through his 65% owned Seven Group Holdings, which controls in turn an extensive Caterpillar machine franchise, various plant hire companies and 25% of Beach Energy, an oil and gas group. After soaring to an all-time high of $23.8 last September, it’s been a bit of a slide for Seven Group Holdings as shares slid 25% (though they are still up 12.7% this year). Both have under-performed the wider market, with the ASX 200 up by 15.8% so far in 2019.
Seven West Media’s decline this year has been driven by two earnings downgrades for the full financial year. The first was at the half-year results in February, when the original guidance for underlying EBIT to grow between 5 and 10% was cut to “underlying group EBIT growth of between zero and 5%”. In early June that was changed to a fall on the 2017-18 result, not an increase or a flat performance. The new range was “$210 million to $220 million versus $235.6m in the prior year”.
At the same time Seven’s first-half ratings performance has been weak compared to previous years. While it won total people over the first 22 weeks of the 44 week rating period, Nine did much better with demographics. The overall TV ad market — boosted as it was by spending on the NSW election in March and the Federal election in May — has still been weaker than the networks expected at the end of last year. Seven’s overall weak ratings effort in 2019 has added to its problems, allowing Nine to grab a bigger share of a shrinking pot of ad dollars.
In many respects Seven West Media’s expulsion from the ASX 200 is a combination of the current market reality and the secular changes in legacy media.