I'm grappling with this share and I too can't can't see the metric by which it is under-valued. I
WANT to get into it but in following everyone's instruction (to DYOR) I'm struggling to see the value.
I'm projecting (i.e. guessing) NTA of around 7c per share so there is no easy win on that basis. I'm forecasting (i.e wild guessing) NPAT and FCF of around 2c-3c per share for FY20 and FY21. Assuming dividends resume at 1c per share ($18m cash cost to SKT) then a value of 25c implies a no growth discount rate of 4% which feels low for the risk inherent in this share. Even if SKT managed a dividend of 2c in FY22 then a share price of 30c implies a no growth discount rate of around 7% - again this feels low plus investors have to wait 2 years. EPS of 3c with a PE of 8-10 implies a share price of 24-30c - so it could be undervalued on that basis but I still can't see where the growth is coming from.
Why am I assessing this as risky which deserves a high discount rate and no growth for dividend valuation purposes?
- Satellite revenues are falling and being replaced at the rate of 20-25c per $1 lost which is resulting in a falling top line (I know I'm stating the obvious).
- I believe certain costs like transmission will be relatively fixed with annual CPI ratchets so they will be hard to reduce in line with the fall in revenues, unless the new CEO has been busy in this area already.
- Overseas programme commitments involve deep pockets and big balls - SKT has a wall of content coming at them (e.g. the last IR had content purchases of $161 but only $138m was amortised). Trying to turn around the cost of fixed content contracts is like trying to turn the QE2. It will be hard to reduce the content costs without having them languish on the Balance Sheet resulting in future impairments.
- Lastly, the fixed assets are heavily aged - the last AR had historical cost of $930m, a book value of $163 and annual depreciation of $71m - I reckon future investment will likely be needed unless SKT can release cash from their Mt Wellington site (I assume they still own this?)
- In conclusion, historical EBITDA and NPAT are long gone not to be seen again. Hence the share price reset.
As I said, I would like to get into this but it feels like a gamble rather than a risk-free investment with little to no prospects for organic growth.
Disclosure: interested observer and wannabe SKT investor but not currently a holder. Financial experience with a broadcaster.