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ISEQ steady-INM plans examined

Wednesday, September 12 09:05:14

The ISEQ is steady this morning at 3,253, up 4 points as markets await developments in the German courts although Far Eastern markets are ahead in anticipation of further stimulus measures.

Independent News and Media has a new approach to its difficulties although the results are not yet evident according to Davy Stockbrokers:

Following Independent News and Media's (INM) interim results, issued August 31st, we have revised our forecasts and rating to reflect greater uncertainty and continued limited visibility and volatility in advertising expenditure. We have downgraded our 2012 and 2013 EBIT forecasts by 12.4pc and 15.6pc respectively. We now expect 2012 EBIT to come it at E56.0m, from E63.9m previously. Based on reduced profitability, restructuring-related exceptional charges and reduced dividend income from APN, we now forecast 2012 free cash-flow of E7.6m, increasing to E11.0m in 2013. We are lowering our rating on the stock to 'Neutral'.

ANALYSIS: Within the group's island of Ireland operations, our forecasts assume that advertising revenue declines by 9.0pc (broadly in line with H1) in both 2012 and 2013. We expect circulation revenue to fall by 3.6pc in 2012. For 2013, we expect circulation revenue to continue to decline but this time at an accelerated rate, as limited ability to push up cover prices sees all of the volume decline flow through. With management's renewed focus on cost-cutting, we expect operating costs to be reduced by 1.3pc in 2012 and by a further 3.0pc in 2013, as cost savings are annualised. Overall, we expect this division to return EBIT of E36.7m in 2012 and E35.3m in 2013.

In South Africa, we expect flat like-for-like advertising revenue in 2012, growing by 2.0pc in 2013. On circulation, we forecast a 0.8pc increase in revenues in 2012, with continued cover price increases more than compensating for volume declines. Due to the relatively higher inflationary environment, we expect operating costs to increase by 5.7pc this year but by just 1.8pc in 2013, as the group benefits from associated cost savings resulting from closing its Johannesburg printing facility. All told, we are forecasting South African EBIT of E24.3m in 2012 and E21.4m in 2013.

Our revised forecasts, combined with cash restructuring charges and lower-than-expected dividend income from APN, have reduced our expected level of cash generation this year and next. We now expect the company to generate free cash-flow of E7.6m in 2012 and E11.0m in 2013. This will result in net debt of E418.7m at end-2012 and E407.6m at end-2013, implying net debt/EBITDA of 6.2x (5.3x including dividends received) at year-end 2012.

DAVY VIEW: With the group currently investigating the potential to dispose of its South African operation, attention will focus on trading on the Island of Ireland and at APN. The Irish advertising market will continue to decline in 2012 and early indications are that the decline will extend into 2013. A disposal of the South African business, along with a long-awaited restructuring of the group's defined benefit pension scheme, should be well received by the market. However, with some uncertainty surrounding these developments and difficult trading in Ireland, we think that the stock will find it difficult to make any meaningful progress in the near term. We are therefore downgrading our rating to 'Neutral' pending greater certainty around disposals, restructuring and a balance sheet re-financing according to Davy Stockbrokers.