North Media A/S : Aktieanalyse, 2. november 2022, ABG Sundal Collier

Equity Research - 02 November 2022 22:54 CET

North Media

Q3 brought the downgrade we expected

• Q3 revenue 3% lower vs. ABGSCe, much weaker EBIT
• FY'22 guidance lowered, primarily from weak Last Mile
• We lower our '22e revenue est. by ~2% and EBIT by 4%

Weaker Q3 a result of a tough macro and cost inflation

North Media reported Q3 revenue of DKK 228m (-3% vs. ABGSCe at DKK 236m) and EBIT of DKK 29m (-35% vs. ABGSCe at DKK 45m). The loss of DKK 19m on the investment portfolio was significantly lower than our estimated loss of DKK 94m in the quarter, causing pre-tax profit to land in positive territory at DKK 12m (vs. ABGSCe at DKK -50m) for the first time since Q4'21, resulting in diluted EPS of DKK ~0.5 (vs. ABGSC at DKK -2.0). From talking to the company, we gathered that the goal of paying a DPS of DKK 5.00/share p.a. for '22e-24e was reiterated, but there were no indications of share buybacks in the short-term.

Guidance downgrade as expected, ests. lowered accordingly

As we suspected in our Q3'22 preview report, North Media lowered its FY'22 revenue guidance range to DKK 995m-1,010m (previously DKK 1,015m-1,040m) and EBIT guidance to DKK 190m-200m (previously DKK 195m-220m), primarily due to lower leaflet volumes (from all-time high paper prices), cost inflation in the Last Mile segment and investments in growth within the Digital Services segments. We lower our '22e group revenue estimate by ~2% to DKK 1,001m and our EBIT estimate by ~4% to DKK 189m to reflect the guidance downgrade. However, as we expect gradually declining paper prices from the current all-time high levels into '23e, we believe that the Last Mile segment will see an uptick in volume demand in '23e and '24e from consumers craving discounts. With the lower estimates being compensated by a higher net cash position from a smaller-than-expected loss on the investment portfolio, we keep our estimate of a DPS of DKK 5.00/share annually for '22e-'24e.

One-year fwd. FVR of DKK 52-110/share(49-111)

We adjust our one-year fwd. FVR slightly to DKK 52-110/share(49-111), as our lower '22-'24e estimates are compensated for by a higher net cash position.

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

DKKm	2020	2021	2022e	2023e	2024e
Sales	1,045	1,034	1,001	998	1,002
EBITDA	270	292	217	210	221
EBITDA margin (%)	25.9	28.3	21.7	21.1	22.0
EBIT adj	240	244	189	182	193
EBIT adj margin (%)	23.0	23.6	18.9	18.2	19.2
Pretax profit	388	347	-54	202	216
EPS rep	16.66	14.71	-2.20	9.15	9.83
EPS adj	10.10	10.33	7.84	7.39	7.93
Sales growth (%)	-0.0	-1.1	-3.2	-0.2	0.4
EPS growth (%)	50.9	-11.7	-114.9	516.1	7.5

Source: ABG Sundal Collier, Company data

Reason: Post-results comment

Commissioned research

Not rated

Estimate changes (%)
	2022e	2023e	2024e
Sales	-1.7%	-1.8%	-2.8%
EBIT (rep)	-4.2%	-2.0%	-4.2%
EPS (rep)	47.1%	8.4%	7.0%
Source: ABG Sundal Collier
Share price (DKK)	02/11/2022	61.9
Fair value range (per share)		52-110
Media, Denmark
NORTHM.COF/NORTHM DC
MCap (DKKm)			1,145
MCap (EURm)			154
Net debt (EURm)			-81
No. of shares (m)			18.5
Free float (%)			34
Av. daily volume (k)			5

Performance
140
120
100
80
60
40
20		Jul 20 Sep 20						Sep 21 Nov 21 Jan 22 Mar 22			Sep 22
Nov 19	Jan 20 Mar 20 May 20	Nov 20	Jan 21	Mar 21	May 21	Jul 21	May 22	Jul 22
		North Media					OMX CPGN PI

	1m	3m	12m
Absolute (%)	-7.1	-21.8	-50.3
Source: FactSet
	2022e	2023e	2024e
P/E (x)	-28.2	6.8	6.3
P/E adj (x)	7.9	8.4	7.8
P/BVPS (x)	1.20	1.12	1.02
EV/EBITDA (x)	2.6	2.3	1.8
EV/EBIT adj (x)	2.9	2.7	2.0
EV/sales (x)	0.55	0.49	0.39
ROE adj (%)	20.1	13.1	13.0
Dividend yield (%)	8.1	8.1	8.1
FCF yield (%)	14.4	10.8	11.4
Lease adj. FCF yld (%)	14.4	10.8	11.4
Net IB debt/EBITDA	-2.8	-3.2	-3.4
Lease adj. ND/EBITDA	-2.8	-3.2	-3.5

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

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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 marginDKKm

Quarterly sales and adj. EBIT margin

1,200								25.0	300
1,000								20.0	250
800								15.0	200
600									150
400								10.0	100
200								5.0	50
0								0.0	0
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
Q1'21	Q2'21	Q3'21	Q4'21	Q1'22	Q2'22	Q3'22	0.0
Q4'22e
	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
0
-2
-4
-6	21		21		22		22		22		22		22		22		22		22		22		22		22
Nov	-	Dec	-	Jan	-	Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-	Sep	-	Oct	-	Nov	-
								ABGSC					FactSet Consensus Mean

Source: ABG Sundal Collier, FactSet

EPS estimate changes, 2023e, DKK

15
14
13
12
11
10
9
8
21		21		22		22		22		22		22		22		22		22		22		22		22
Nov	-	Dec	-	Jan	-		Feb	-	Mar	-	Apr	-	May	-	Jun	-	Jul	-	Aug	-	Sep	-	Oct	-	Nov	-
									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	10.0
-300
								-1.5
-400									9.0
								-2.0
-500
								-2.5	8.0
-600
									7.0
-700									-3.0
-800									-3.5	6.0
-900								2023e	-4.0	5.0
2015	2016	2017	2018	2019	2020	2021	2022e	2024e
Nov-17	Nov-18	Nov-19	Nov-20	Nov-21	Nov-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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2 November 2022	ABG Sundal Collier	2
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North Media

2 November 2022

Deviation, Q3 in-depth & est. revisions

While Q3 is usually a weak quarter for North Media, Q3'22 was also weaker compared to previous Q3s, with group revenue down 7.5% y-o-y and the EBIT margin ~10pp lower compared to Q3'21. The weak quarter was primarily a result of all-time high paper prices weighing on the top line and cost inflation in the Last Mile segment combined with investments in growth in the Digital Services segments.

Deviation table

DKKm					ABGSCe	Actual	Deviation
	Q3'21	Q4'21	Q1'22	Q2'22	Q3'22e	Q3'22	%
Revenue	246	286	248	260	236	228	-3.4%
Y/Y revenue growth (%)	-5.4%	4.0%	2.3%	0.4%	-4.2%	-7.5%	-3.3pp
Cost of services	-103	-113	-106	-113	-101	-105	-3.4%
Gross profit	143	172	142	147	135	123	-8.6%
Gross margin (%)	58.0%	60.3%	57.2%	56.5%	57.1%	54.1%	-3.1pp
Other income and costs	-82	-89	-88	-89	-85	-89	-4.8%
Other operating income	1	1	1	1	1	1	10.1%
Rep. EBITDA	63	84	55	59	51	36	-30.2%
Adj. EBITDA	63	84	55	59	51	36	-30.2%
Adj. EBITDA margin (%)	25.4%	29.4%	22.2%	22.7%	21.8%	15.7%	-6.1pp
D&A and impairments	-7	-27	-7	-7	-6	-7	-5.2%
Rep. EBIT	56	57	48	52	45	29	-35.3%
Adj. EBIT	56	57	48	52	45	29	-35.3%
Adj. EBIT margin (%)	22.6%	20.0%	19.4%	20.0%	19.1%	12.8%	-6.3pp
Share of profit/loss in associates	2	2	2	2	0	2	n.m.
Return on securities	15	26	-95	-116	-94	-19	80.1%
Net financials	-1	-1	-1	0	-1	0	81.1%
Rep. pre-tax profit	71	84	-46	-62	-50	12	124.5%
Adj. pre-tax profit	56	57	49	54	44	31	-30.4%
Adj. pre-tax margin (%)	22.9%	20.1%	19.9%	20.6%	18.8%	13.6%	-5.3pp
Tax on profit/loss for the period	-15	-17	10	14	11	-2	-120.3%
Rep. net profit to equ. hol.	56	67	-35	-48	-38	10	125.8%
Adj. net profit to equ. hol.	44	46	38	41	34	25	-26.8%
Adj. net profit margin to equ. hol. (%)	18.0%	16.0%	15.4%	15.9%	14.5%	11.0%	-3.5pp
Basic EPS	3.10	3.66	-1.90	-2.60	-2.07	0.54	125.8%
Diluted EPS	3.00	3.59	-1.90	-2.60	-2.03	0.52	125.8%
Adj. EPS	2.39	2.48	2.06	2.24	1.85	1.30	-30.2%
Last Mile
Revenue	210	248	208	219	194	189	-2.8%
EBIT	51	74	48	50	42	30	-29.2%
BoligPortal
Revenue	22	21	23	24	25	24	-3.5%
EBIT	7	7	5	6	6	6	-1.1%
Ofir
Revenue	9	10	11	11	10	9	-6.0%
EBIT	1	1	2	1	1	0	n.m.
Bekey
Revenue	6	7	7	7	7	6	-18.9%
EBIT	-2	-23	-4	-3	-3	-3	-6.1%

Source: ABG Sundal Collier, company data

The Last Mile segment saw revenues declining ~10% y-o-y in Q3'22, largely due to all-time high paper prices, which have forced customers to continue to reduce page counts and campaigns while selecting thinner and less expensive paper. In addition, there are higher salaries for its more than 10,000 deliverers and increased recruitment costs. These factors led to this segment constituting the primary reason for the FY'22 guidance downgrade made a few hours prior to the Q3 announcement. While we are in the lower end of the segment's updated FY'22 revenue guidance of DKK 837m-846m (previous DKK 851m-866m) at DKK 839m, we are 2% lower than the low point of the segment's EBIT guidance, as we still believe the company's own expectations for costs are too optimistic. We now expect a revenue CAGR in '21-'24e of -3% and an avg. EBIT margin of ~21% for '22e-'24e.

ABG Sundal Collier

3

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North Media

2 November 2022

Newsprint prices (USD/tonne)

1000

900

800

700

600 USD/tonnes 500 400

300

200

100

0 03-Jan03-Sep04-May05-Jan05-Sep06-May07-Jan07-Sep08-May09-Jan09-Sep10-May11-Jan11-Sep12-May13-Jan13-Sep14-May15-Jan15-Sep16-May17-Jan17-Sep18-May19-Jan19-Sep20-May21-Jan21-Sep22-May

Source: ABG Sundal Collier, Bloomberg

BoligPortal seems to reap some of the benefits of an uncertain market for homeowners, considering that the company has seen a record-high supply of rental units on the market. We continue to expect that more people will turn to rental housing rather than becoming homeowners, thus benefitting BoligPortal. We leave our estimates for BoligPortal unchanged and expect a revenue CAGR in '21-'24e of 14% and an avg. EBIT margin of ~26% for '22e-'24e.

Number of listings on BoligPortal

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

-

Sep-22

Jul-22

May-22

Mar-22

Jan-22

Nov-21

Sep-21

Jul-21

May-21

Mar-21

Jan-21

Nov-20

Sep-20

Jul-20

May-20

Mar-20

Jan-20

Nov-19

Sep-19

Jul-19

May-19

Mar-19

Jan-19

Nov-18

Sep-18

Jul-18

Source: ABG Sundal Collier, company data

On the contrary, Ofir suffered from a sudden slowdown in the market for job ads, while slower revenue growth, higher business development costs and investments in growth all had a negative impact on EBIT. We continue to expect a softer Danish labour market, leading to slower top line growth ahead for the segment from fewer job ads and lower pricing power. We lower our estimates for the segment further and expect a revenue CAGR in '21-'24e of 9% and an avg. EBIT margin of ~11% for '22e-'24e.

ABG Sundal Collier

4

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North Media

Bekey saw revenues drop 8.3% y-o-y in Q3'22, mainly due to a drop in sales in the municipal segment, leading us to lower our growth estimates. Following strong growth recently, the 50% owned Karman Connect (formerly Lead Supply) should also see slower growth ahead.

As we anticipated in our Q3'22 preview, FY'22 group guidance was downgraded a few hours prior to the Q3 announcement. North Media now guides for FY'22 group revenue of DKK 995m-1,010m (previously DKK 1,015m-1,040m), while the EBIT guidance was lowered to DKK 190m-200m (previously DKK 195m-220m). We estimate '22 revenue of DKK 1,001m and an EBIT of DKK 189m.

Company guidance vs. ABGSCe

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	995	1,010	190	200	837	846	188	192	93	95	23	25	40	42	3	5	25	27	-14	-13
ABGSCe	1001	189		839			184	95		24			42	4		25			-14
Actual

Source: ABG Sundal Collier, company data

Annual group revenue and margins

1,200

1,046	1,045	1,034	1,001	998	1,002

1,000

Quarterly group revenue and margins

70%	300				286							80%
			259			260	264		259	265	260	265
60%	250	243	246	248		246	248	70%
					228			229		230
												60%

800
600
23.0%	23.6%

50% 200

40% 150

30%

100

50%

40%

30%

400									18.9%		18.2%		19.2%
	16.3%
							18.6%
200					17.4%
									14.7%		14.0%		15.0%
-	11.0%
2019			2020	2021		2022e		2023e		2024e
		Revenue		Rep, EBIT margin (%)	Adj. net profit margin (%)

20%

10%

0%

50

-

20%

10%

0%

Revenue	Rep, EBIT margin (%)
Adj. net profit margin (%)	Gross margin (%)

Source: ABG Sundal Collier, company data

Source: ABG Sundal Collier, company data

EPS and DPS (DKK)

21.00
		16.66
16.00			14.71
11.00	11.04	10.10	10.33
		9.15
				7.84
				7.39
	5.83
6.00	5.00	5.00	5.00	5.00
	4.00
1.00
(4.00)			(2.20)
	2019	2020	2021	2022e	2023e
		Diluted EPS	Adj. EPS (diluted)	DPS (for the year)

Cash position (DKKm)

1,000
900		883		865
800	739	760	781	761
717
			672
700		608
	602

9.83600

7.93	500		485
5.00	400	327	343
	300
	200
	100

	-
2024e	2018	2019	2020	2021	2022e	2023e	2024e
		Total cash and liquid assets	Net cash position incl. leases

Source: ABG Sundal Collier, company data

Source: ABG Sundal Collier, company data

2 November 2022	ABG Sundal Collier	5
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