Domain is eating Fairfax

If you’ve ever wondered why Fairfax media loves property so much look no further than today’s profit result, from Mac bank:

Fairfax has released its 1H14 result:

• Key numbers (excluding TradeMe):

o Revenues fell by 9.1% to $1,076m (Macquarie $1,014m)

o EBITDA fell by 0.6% to $185.5m (Macquarie $179.4m)

o Note: These numbers reflect 26 trading weeks in 1H14 compared to 27 weeks in 1H13 ($20m revenue and $2m impact).

• Interim dividend of 2.0cps (Macquarie 1.4cps).
• Trading update: Trading continues to improve, with revenues in the first 5 weeks of the year just 3% below last year. This compares to like-for-like declines of 5.5% in 1H. Cost savings have increased, with costs now expected to be below $1.6bn, previously expected to be around that level.

Impact

• Overall, this result demonstrates a shift in momentum as cost-out programs accelerate and some revenue trends begin to improve. The highlights look to be cost management and Domain, as well as generally improving momentum. On the flipside, metro print advertising revenue continued to decline at 25%.
• This Group result was 3.4% ahead of our expectations at the EBITDA line, although this appears to be driven by a one-off reclassification of a depreciation re-charge in Metro of $7.4m). For FY14 and FY15, our EBITDA estimates are 8% and 11% above consensus, respectively.
• Publishing trends remained weak, with metro ad revenues declining by 14% on an underlying basis, with Print the key driver as mentioned above. Despite this, Metro Media EBITDA actually grew by 52% on the prior period due to offsets from higher cover prices, digital subscription revenues, Domain, and the delivery of cost savings under the Fairfax of the Future program.
• Domain was a strong performer. While revenues only grew by 3.5% (print -30%, digital +29%), EBITDA did lift by 33%, and digital EBITDA by 50%. In Digital, revenues were driven by yield growth (mostly from depth products, which are now 60% of revenues) and improved volume trends. The Domain represents around 39% of our valuation for Fairfax.
• Fairfax’s balance sheet is in a good position now, with net cash of $80m following the sale of Stayz.

It’s fast turning into Domain!