Noise – mostly unsubstantiated speculation – about the future of e.tv won’t die down, especially since the departure of chief executive officer (and HCI chairman) Marcel Golding and chief operating officer Bronwyn Keene-Young in 2014.

But, a series of transactions which were set in motion three years ago, has seen investment holding company HCI effectively unbundle its media assets into a separate company, Seardel (in turn, Seardel unbundled its legacy textile assets and distribution business into Deneb Investments). This allowed the Southern African Clothing and Textile Workers’ Union (Sactwu), originally a shareholder in HCI, to swap that holding for a direct ownership of the media business, via Seardel.

Now, JSE-listed eMedia Holdings (neé Seardel) has 67.7% of Sabido as its only asset. This allows for a little more insight into the performance of both e.tv and eNCA, given that these form the rump of this new business.

In the six months to end-September 2015, the media business (Sabido) reported R1.146 billion in revenue, 7% lower than the prior year period. Profits also dropped, by 17.6%, on an EBITDA (earnings before interest, taxation, depreciation and amortisation) basis, as did margins.

We also have data points from Remgro’s financials as it has a minority 32.4% ‘effective interest’ in Sabido. For the year ended 30 June 2015, Sabido contributed R69 million in headline earnings to the investment holding company, nearly half of what it achieved in the prior year. Extrapolate that figure, and you get to R214 million in headline earnings at (the whole of) Sabido for the year to end-June.

The news is not great, practically across the board…

Seardel says e.tv is trading at R114 million “behind” revenue for the prior comparative period (six months to September 2015 vs 2014). It says the “adverse economic climate and the decline in market share towards the end of the last financial year has seen classical advertising revenue remain under continued pressure”. Revenue at the station has been under pressure for a while, with HCI in September 2014 saying, “advertising revenue in respect of e.tv remained relatively unchanged”. At that time, nearly 18 months ago, it pointed to “a difficult trading environment and the aggressive local programming investment by its competitors”.

However, Seardel points to e.tv’s new schedule, launched on 1 March 2015, and says this has “arrested the decline in market share”. Revenue lags audience-share, so any of these benefits would only flow through in the coming months.

eNCA (eSat.tv) reported net profit after tax of R104.8 million in the six months to September, a significant increase on the R68.7 million between March and September 2014. However, in its commentary, Seardel makes the point that “cost savings in the light of renewal negotiations for the contract with DStv ending on 30 May 2015 has resulted in the increase in profits”.

Its struggling pay-tv venture, Platco Digital, available to customers through OpenView HD, remains loss making. Seardel cites a R112.2 million loss due to “continued investment” in that business. And the number of subscribers remains small, especially when compared to dominant Pay TV operator MultiChoice. 110 000 boxes were activated between March and September last year, compared to approximately 50 000 boxes in the first year of operations. Active boxes total approximately 268 000, and the company says activations are running at roughly 25 000 a month.

It’s been a year of cleanup, with e.tv exiting its Botswana and China operations and shutting down eNCA Africa. It first entered Botswana in 2007 and the venture is profitable (R197 000 profit after tax in the six months to end-December). Many of the other international assets, sitting inside Longkloof Limited, are loss making, with a R6.662 million loss after tax in the six months, on revenue of barely double that (R15.3 million).

There’s a lot riding on the (very overdue) rollout of digital terrestrial television (DTT), and e.tv is hoping that it’ll be able to leverage its investment in additional channels in the Platco business once DTT rolls out.

What’s the business valued at?

Remgro puts the intrinsic value of its stake in Sabido at R2.094 billion, as at 30 June 2015. That’s only for less of a third of the business. The intrinsic value for 100% is closer to R6.5 billion, possibly more than R7 billion with a premium attached. There’s some debt in eMedia Holdings (around R400 million net of cash) but you’d probably be able to raise a good few hundred million from the sale of non-core assets like Sasani, Yfm and its content businesses (Jacana, Mindset, Strika, etc.), so any deal could end up ‘costing’ closer to R6 billion.

The relative management vacuum left behind after the departure of Golding and Keene-Young is oft mentioned. Kevin Govender has been appointed acting CEO of Sabido (and eMedia Holdings), but he remains financial director of HCI. It’s obvious that the major shareholder is actively tidying things up. But to what end?

The business, now neatly listed on its own, would make for a far easier transaction for any would-be acquirer. But there aren’t too many of those around, are there?

And you can be sure Sactwu aren’t active sellers. After all, the union wanted direct ownership of these assets and has spent over three years waiting for it.

Source: themediaonline – business reporter