Kestrel viva la vida
Nation Media Group this afternoon announced FY12 results posting a 25.1% y/y growth in EPS to KES 15.98. Earnings growth was attributable to a modest growth revenue (+9.8% y/y to KES 12.3bn) as a result of improved performance by the new products as well as growth in revenue contribution from Uganda, Rwanda and Tanzania. The positive performance was also boosted by a much better business environment compared to the previous year which saw cost of sales decline 7.0% y/y to KES 2.7bn.The Board of Directors recommended a Final Dividend of KES 7.50 per share which together with the KES 2.50 Interim Dividend per share brings FY12 DPS to KES 10.00, a 25.0% y/y increase. The Board of Directors also recommended a 1:5 Bonus Issue subject to the approval of shareholders. We highlight the key notes from the results below:
Gross profit margin strengthens 390bps y/y to 78.5%- Nation Media posted a 15.5% y/y increase in gross profit on the back of a 9.8% y/y rise in revenue to KES 12.3bn as the company continued to register market share gains in its new markets. Tanzania’s lead product Mwananchi recorded a 25.0% and 35.0% y/y increase in circulation revenue and advertising revenue respectively on the back of process improvement and automation. Rwanda, the company’s newest market, witnessed the successful launch of a radio station (K FM) and a newspaper (Rwanda Today). This, coupled with positive performance in most of the segments, as well as a stable shilling and much lower newspaper costs leading to lower cost of sales (-7.0% y/y to KES 2.7bn), contributed to the strong increase in gross margin.
Operating expenses up 14.0% y/y to KES 6.7bn on the back of new product offerings and product improvement- During the year, new products were introduced to Nation Media’s various markets including sports newspapers in Kenya (Sporton) and Uganda (Ennyanda) as well as radio stations in Uganda and Rwanda. The company also embarked on improving their existing products including modernization of NTV Kenya studio and increasing the program offerings in their various TV stations across the region. This saw the net cash in investing activities increase 40.6% y/y to KES 611.7m.
Strong cash position results in a 79.0% y/y increase in other income: Cash and Cash equivalents increased 44.3% y/y to KES 4.0bn on the back of a 91.8% y/y rise in net cash from operating activities. Coupled with favorable interest rates (12.65%-average rate for 91 day T-Bill in 2012), its strong cash position saw the company earn impressive interest income, which drove the rise in other income.
Outlook for 2013:
We expect sustained growth in Nation Media’s earnings driven mainly by consolidation of the company’s brands across all the market segments, product innovation as well as cost management including automation in their numerous printing presses. We believe that Rwanda and Uganda are poised to drive the company’s revenues upwards given the robust opportunities in both markets. As the numerous investments made in these markets both in FY11 and FY12 break even, we expect to see strong growth in net earnings. Nation Media trades at a P/E and P/B of 17.6x and 6.1x respectively and an ROE of 34.6%.