North Media A/S : Aktieanalyse 18. august 2022, ABG Sundal Collier

Equity Research - 18 August 2022 11:09 CET

North Media

The Last Mile cash cow is set to continue

• Q2 EBIT of DKK 52m in line with ABGSCe
• No shift to JaTak expected - cash cow set to continue
• New 1Y forward FVR of 56-137(90-140)

Q2 EBIT in line with ABGSCe, revenues slightly higher

North Media reported Q2 revenues of DKK 260m (2.4% vs. ABGSCe at DKK 254m) and EBIT of DKK 52m (0.0% vs. ABGSCe at DKK 52m). EBT came in at DKK -62m(-202% vs. ABGSCe at DKK 61m), heavily impacted by a DKK 116m loss (vs. ABGSCe gain of DKK 10m) on the securities portfolio in Q2. The report offered no indications of increased dividends or share buybacks.

With no shift to JaTak expected, the cash cow continues

We generally like North Media's mix of value and growth businesses. We see clear disadvantages of a shift to JaTak or a complete ban on printed matter in Denmark, allowing the Last Mile segment to continue being a cash cow. The segment will thus continue to constitute an important source of funding for the Digital Services segment in the years ahead and for potential M&A. We are generally positive on the performances in BoligPortal and Ofir, while we also see improvement in the underperforming segment Bekey. At group level, we expect generally flat revenues in '21-'24e and the EBIT margin to average 20% in '22e-'24e. We remain unconvinced by the company's capital allocation strategy and estimate the net cash position to reach DKK ~862m in '24e.

New 1-year forward FVR of DKK 56-137 per share (90-140)

Following a change of analyst, we have altered our valuation approach and now estimate a 1-year forward FVR of DKK 56-137 per share (90- 140). We derive the high end of our FVR using a DCF valuation based on our '22e-'25e estimates. The lower end of our FVR assumes an extreme case of a complete ban on printed matter in Denmark after '23, resulting in zero subsequent cash flows. We also aim to shed some light on the potential combined value of the Digital Services segments BoligPortal and Ofir using multiples from online classifieds peers, resulting in a fair value for the two segments of DKK 362m.

Analyst(s): [e-mail], [phone] [e-mail], [phone]

DKKm	2020	2021	2022e	2023e	2024e
Sales	1,045	1,034	1,027	1,044	1,064
EBITDA	270	292	237	240	253
EBITDA margin (%)	25.9	28.3	23.1	22.9	23.8
EBIT adj	240	244	209	209	223
EBIT adj margin (%)	23.0	23.6	20.3	20.1	21.0
Pretax profit	388	347	51	238	255
EPS rep	16.70	14.70	2.07	9.71	10.42
EPS adj	8.11	9.16	10.59	8.40	9.06
Sales growth (%)	-0.0	-1.1	-0.6	1.7	1.9
EPS growth (%)	51.8	-12.0	-85.9	368.7	7.3

Source: ABG Sundal Collier, Company data

Reason: Post-results comment

Commissioned research

Not rated

Estimate changes (%)
	2022e	2023e	2024e
Sales	-0.2%	0.3%	0.4%
EBIT (rep)	-0.2%	-1.3%	3.4%
EPS (rep)	-80.4%	-9.9%	-5.5%
Source: ABG Sundal Collier
Share price (DKK)	18/08/2022	81.9
Fair value range (per share)		56-137
Media, Denmark
NORTHM.COF/NORTHM DC
MCap (DKKm)			1,515
MCap (EURm)			204
Net debt (EURm)			-91
No. of shares (m)			18.5
Free float (%)			34
Av. daily volume (k)			7

Next event									Q3 report: 02 Nov
Performance
140
120
100
80
60
40
20
Aug 19	Oct 19 Dec 19	Feb 20	Apr 20 Jun 20	Aug 20	Oct 20	Dec 20	Feb 21	Apr 21	Jun 21	Aug 21 Oct 21 Dec 21	Feb 22 Apr 22 Jun 22
			North Media					OMX CPGN PI

	1m	3m	12m
Absolute (%)	16.8	15.7	-33.8
Source: FactSet
	2022e	2023e	2024e
P/E (x)	39.6	8.4	7.9
P/E adj (x)	7.7	9.7	9.0
P/BVPS (x)	1.47	1.36	1.24
EV/EBITDA (x)	3.6	3.2	2.6
EV/EBIT adj (x)	4.1	3.7	3.0
EV/sales (x)	0.84	0.74	0.62
ROE adj (%)	nm	nm	nm
Dividend yield (%)	6.1	6.1	6.1
FCF yield (%)	10.1	10.0	10.7
Lease adj. FCF yld (%)	10.1	10.0	10.7
Net IB debt/EBITDA	-2.8	-3.2	-3.4
Lease adj. ND/EBITDA	-2.9	-3.2	-3.4

Please refer to important disclosures at the end of this report

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to

constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II.

North Media

Company description

North Media is the only media company listed on the OMX Copenhagen Stock Exchange. While the company started as a distributor of unaddressed printed advertisements and newspapers in 1965, the company is today considered both a value and a growth company. The company's Last Mile segment (86% of '21 sales) is its cash cow, but it is operating in an industry with structurally declining volumes. Its Digital Services segments (14% of '21 sales) consists of BoligPortal (home rentals platform), Ofir (job portal), and Bekey (digital access solutions).

Risks

There are three main risks to the company: 1) the implementation of regulations or bans against physical advertisements on the back of environmental concerns, which in the worst case could put the Last Mile segment almost completely out of business, 2) stiff competition facing the Digital Services segments, and 3) difficulties in finding new growth opportunities in the Digital Services segments.

Annual sales and adj. EBIT margin

Quarterly sales and adj. EBIT margin

1,200								25.0	290
1,000								20.0	280
								270
800
							15.0	260
600									250
400								10.0	240
200								5.0	230
								220
0								0.0	210
2016	2017	2018	2019	2020	2021	2022e	2023e	2024e
	Sales (LHS)			Adj EBIT margin % (RHS)

							30.0
							25.0
							20.0
							15.0
							10.0
							5.0
Q4'20	Q1'21	Q2'21	Q3'21	Q4'21	Q1'22	Q2'22	0.0
Q3'22e
	Sales (LHS)			Adj EBIT margin % (RHS)

Source: ABG Sundal Collier, Company data

Source: ABG Sundal Collier, Company data

EPS estimate changes, 2022e, DKK

14
12
10
8
6
4
2
21		21		21		21		21		22			22		22		22		22		22		22		22
Aug	-	Sep	-	Oct	-		Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-
									ABGSC								FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

EPS estimate changes, 2023e, DKK

14.5
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5	21		21		21		21		21		22		22		22		22		22		22		22		22
Aug	-	Sep	-	Oct	-	Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-
								ABGSC						FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

Lease adj. net debt and ND/EBITDA		12-monthforward-looking P/E
0									0.0	12.0
-100									-0.5	11.0
-200
								-1.0
-300									10.0
								-1.5
-400									9.0
-500									-2.0
-600									-2.5	8.0
-700
								-3.0	7.0
-800
								-3.5
-900									6.0
-1,000								2023e	-4.0	5.0
2015	2016	2017	2018	2019	2020	2021	2022e	2024e
Aug-17	Aug-18	Aug-19	Aug-20	Aug-21	Aug-22

Net IB debt excl. leasing (LHS)		Net IB debt/EBITDA lease adj. (RHS)

P/E f12m		5y avg

Source: ABG Sundal Collier, Company data

Source: ABG Sundal Collier, Company data

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18 August 2022

ABG Sundal Collier

2

North Media

Q2 - a quarter with no real surprises

Below, we outline the main points from Q2'22.

Deviation table

DKKm				ABGSCe	Actual	Deviation
	Q3'21	Q4'21	Q1'22	Q2'22e	Q2'22	%
Revenue	246	286	248	254	260	2.4%
Y/Y revenue growth (%)	-5%	4%	2%	-2%	0.4%	2.4pp
Cost of services	-103	-113	-106	-105	-113	7.7%
Gross profit	143	172	142	149	147	-1.4%
Gross margin (%)	58%	60%	57%	59%	57%	-2.3pp
Other income and costs	-82	-89	-88	-92	-89	-2.8%
Other operating income	1	1	1	1	1	40.0%
Rep. EBITDA	63	84	55	58	59	1.6%
EBITDA margin (%)	25%	29%	22%	23%	23%	-0.2pp
D&A and impairments	-7	-27	-7	-7	-7	0.0%
Rep. EBIT	56	57	48	52	52	-0.2%
EBIT margin (%)	23%	20%	19%	21%	20%	-0.6pp
Share of profit/loss in associates	2	2	2	0	2
Return on securities	15	26	-95	10	-116	-1257.0%
Net financials	-1	-1	-1	-1	0	-60.0%
Rep. pre-tax profit	71	84	-46	61	-62	-202.0%
Pre-tax margin (%)	23%	20%	20%	24%	-24%	-47.9pp
Tax on profit/loss for the period	-15	-17	10	-13	14	-207.7%
Rep. net profit to equ. hol.	56	67	-35	48	-48	-200.0%
Net profit margin to equ. hol. (%)	17%	14%	24%	19%	-18%	-37.4pp

Source: ABG Sundal Collier, company data

Group revenue came in at DKK 260m, an improvement of 0.4% y-o-y, while the group EBIT margin declined to 20%. However, this decline was expected. A loss of DKK 116m on the securities portfolio played a key part in the DKK 48m loss on the bottom line. Adjusted diluted EPS came in at DKK 3.60, up from DKK 2.00 in Q2'21.

The Last Mile segment saw revenues decline 1.7% y-o-y, partly due to the structural decline in printed matter (which is nothing new), but also to high paper prices, which have led customers to reduce page counts. On the other hand, North Media says that high inflation has raised consumer interest in leaflets, while retail chains have stepped up their focus on discount and low-cost products. We consider this a positive for the segment. We also note that the online leaflets (Minetilbud.dk) saw a pick-up in activity, and management considers this a hedge against the structural decline in printed matter. The lower EBIT margin of 22.7% for the segment was expected, and primarily resulted from higher distribution, packing, and transportation costs.

Digital Services saw revenues increase by 13.5% y-o-y and recorded an EBIT margin of 10%. BoligPortal saw 9% growth y-o-y , driven by new products and growing income from advertising of rental units in its marketplace. In addition, BoligPortal has seen a recovering market since H2'21. The segment's EBIT was impacted by the acquisition of Boligmanager (a negative effect of DKK 1.6m) but it still managed to achieve a margin of 26%. Ofir grew revenues 20% y-o-y , driven by job ads growing 27%. EBIT fell as expected from an increase in development costs and a new data platform, with the margin coming in at ~13%.

Bekey grew revenues by 20% after winning and initiating contracts with local authorities in Denmark. The Homecare segment reached profitability, while Distributors continued to grow, albeit from a lower starting point. The EBIT margin came in lower at -50% from the decision to expense development and installations costs, which were previously capitalised.

18 August 2022

ABG Sundal Collier

3

North Media

The 50%-owned fintech company Lead Supply changed name to Karman Connect and continued its strong growth momentum, posting Q2 EBIT of 25%. The company expects to continue its strong growth in '22 and expects earnings to improve.

'22 group guidance was narrowed to revenues of DKK 1,015-1,040m, from DKK 1,010-1,045m, and EBIT of DKK 195-220m, from DKK 190-220m. Last Mile '22 revenue guidance was narrowed to DKK 851-866m, from DKK 850-870m, while the segment's EBIT guidance was narrowed to DKK 192-208m, from DKK 190-210m. '22 revenue guidance for the Digital Services segment was narrowed to DKK 164- 174m, from DKK 160-175m, while its EBIT guidance was raised from DKK 9-17m to DKK 12-20m.

Company guidance

FY'22 guidance FY'21 guidance

		Group			Last Mile			Boligportal				Ofir			Bekey
	Revenue		EBIT	Revenue		EBIT	Revenue		EBIT	Revenue		EBIT	Revenue		EBIT
	Low	High	Low	High	Low	High	Low	High	Low	High	Low	High	Low	High	Low	High	Low	High	Low	High
AR'20	985	1,025	230	255	840	870	210	230	93	97	31	33	24	27	1	2	28	31	-7	-5
Q1'21	995	1,025	235	255	850	870	215	230	93	97	31	33	24	27	1	2	28	31	-7	-5
Q2'21	1,015	1,035	250	265	865	880	235	245	90	94	29	31	31	34	3	5	26	30	-7	-6
Q3'21	1,020	1,035	255	265	875	885	240	245	85	87	26	28	34	36	4	5	26	27	-7	-7

Realised	1034		244		889			249	85			27		36	6		24			-29
AR'21	1,010	1,045	190	220	850	870	190	210	93	99	18	22	42	46	5	7	25	30	-14	-12
Q1'22	1,010	1,045	190	220	850	870	190	210	93	99	18	22	42	46	5	7	25	30	-14	-12
Q2'22	1,015	1,040	195	220	851	866	192	208	94	98	21	25	43	46	5	7	27	30	-14	-12
Q3'22
ABGSCe	1027		209		860			199	95			23		44	6		27			-13
Actual

Source: ABG Sundal Collier, company data

18 August 2022

ABG Sundal Collier

4

North Media

Summary

We like North Media's mix of value and growth segments. Despite digitalisation and sustainability concerns, we see clear disadvantages of a shift to JaTak or a complete ban on printed matter, leading us to believe that the Last Mile segment will continue to be a cash cow. We like the recent developments in BoligPortal, building new income streams, and in Ofir, which is set to remain profitable despite investments in further growth capabilities. While management says it currently does not know the best way to play the Bekey segment, we still believe it will grow and improve its margins in '22e-'25e. Following a change of analyst, we have thoroughly revised our estimates. We expect flat revenue in '21-'24e and an average group EBIT margin in '22e-'24e of 20%. We derive a 1-year forward FVR of 56-137 per share, while we calculate a combined value for BoligPortal and Ofir of DKK 362m.

Last Mile - the cash cow is set to continue

The Last Mile segment is by far the largest distributor of physical leaflets and local newspapers in Denmark. Despite digitalisation and concerns about the sustainability of printed leaflets, advertising via physical leaflets and printed matter remains the most popular channel for advertising due to its high attention rate and low irritation rate.

While the market is in structural decline, North Media's management still sees a future for printed matter. Management estimates that the volume decline is stabilising at 4% annually after years of higher declines amid PostNord's exit from the market in '17. We expect revenues to decline from DKK 889m in '21 to DKK 837m in '24, representing a CAGR '21-'24e of -2%. FK Distribution is currently also packing for Deutsche Post, but after talking to the company, we do not expect the collaboration to be a game changer for the segment in terms of growth but merely a contributor to higher utilisation.

We foresee higher costs in '22, mainly due to higher prices of paper and a significant increase in distribution costs from higher fuel prices and higher wages. This leaves us with an EBIT margin of 23% in '22e, down from the record-high 28% in '21. Despite a continued slight decline in revenues, we believe the EBIT margin can be sustained at ~22% in '23e-'24e thanks to efficiency improvements.

Last Mile: Revenue and EBIT margin (DKK, %) Denmark: Print revenue and ads statistics

1,000	935	914		889							70%
900			860	850
							837
								60%
800
700														50%
600														40%
500
						28.0%
400				25.6%								30%
								23.1%		22.2%		22.2%
300	18.4%													20%
200														10%
100
-	2019	2020		2021		2022e		2023e	2024e	0%
					Revenue			Rep, EBIT margin (%)

6,000
	82%	79%	78%
5,000				73%	70%
						62%
4,000
						54%
3,000								50%		50%		50%		49%		48%
												31%		33%		34%
2,000				27%	28%	27%	26%	26%		28%
		21%	22%
	19%
1,000							20%	24%		22%		20%
														19%		18%

11%

- 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Revenue from printed matter (DKKm) JaTak NejTak NejTak+

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Source: ABG Sundal Collier, company data

Source: ABG Sundal Collier, IRM, company data

The Last Mile segment faces an overhanging risk of a regulatory shift to JaTak ("Yes, thanks"), an event that would force consumers to actively register to continue receiving physical leaflets. Talks of a potential shift have come in waves in recent

18 August 2022

ABG Sundal Collier

5