Top Triple M, 2Day FM investor sounds warning over streaming
Southern Cross Austereo’s largest shareholder has said it may not make its money back from a long-term investment in the company if the radio sector continues to lose listeners to subscription-music platforms like Spotify.
Allan Gray managing director Simon Mawhinney said Southern Cross shares currently look “very cheap”, but there was still a question mark over whether the company could continue to generate earnings when it competed with online music platforms. Allan Gray owns more than 19 per cent of Southern Cross, which owns the 2DayFM, Fox FM and Triple M radio networks.
Southern Cross shares have fallen 32 per cent since January.Credit:Photo: Andrew Quilty
“Southern Cross trades at a very low multiple of earnings,” Mawhinney said. “We think, sustainably, the company should make around $95 million of pre-tax earnings. And relative to that, it’s very cheaply priced.
“But, of course, the elephant in Southern Cross’s room is, is Spotify going to kill it? And are people going to listen to the radio in five-10 years’ time? I guess if it’s 10 years’ time we’re fine and we’ll make our investment back, if it’s five years’ time it’s going to be touch and go.”
Southern Cross shares fell almost 80 per cent from when Blackley took the helm to when a capital raising was completed in May 2020. Shares have fallen 42 per cent since November 2020 when the company completed a one for 10 share consolidation. The company hired recruitment firm Korn Ferry earlier this year to search for Blackley’s successor.
Grant Blackley has run Southern Cross since 2015.Credit:Louise Kennerley
The company, which owns regional television and the Triple M and Hit radio networks, is one of the last remaining ASX-listed media companies but has not benefited from broader industry consolidation so far. Southern Cross’ main growth focus is through its digital audio offering, which is underpinned by audio streaming and podcast app LISTNR. The revenue from this segment – up 40 per cent to $15.4 million in the last year – is much smaller than the amount earned by traditional radio and television assets. These services also compete directly with other platforms such as Spotify, which provides customers with ad-free or ad-supported access to songs, artists and albums from across the world.
Simon Conn, portfolio manager at Investors Mutual, said if the company can improve its ratings, it can get itself into a better financial position.
He said it was frustrating holding shares in a radio company (Investors Mutual holds 5.4 per cent) over the past two years, as small to medium businesses have significantly affected revenue growth.
“The market perceives radio to be in decline, but it’s a bit unfair. We’ve been knocked around by COVID. It’s not high growth, but there’s still growth in the medium, it generates good audiences, and it’s cost-effective for an advertiser,” he said.
“Southern Cross has lagged because of investment in podcasting, and they had to raise money. It had to reinvent itself and that’s where the apps are relevant. Southern Cross has more digital channels than any other station. It is strategically well positioned. ”
Southern Cross is in the process of selling off its regional television assets. It is unclear whether any private equity firms or media companies – such as affiliate partner Paramount – have lodged a bid, but sources familiar with the deal say a transaction, if it happens, will occur before the next financial year. There is still a chance real-estate entrepreneur Antony Catalano may make a late bid for the asset, dependent on price, according to people close to the discussions who spoke anonymously.
Conn says this could also increase its value. “If they can monetise their TV business and return capital to shareholders, you are left with a pure audio business which could appeal to another corporation,” he said.
Shares in Southern Cross Media Group closed at $1.32 on Friday, down 2.6 per cent.
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