I may have been a bit flippant recently about investment giant Remgro’s decision to unbundle its stake in free-to-air television broadcaster eMedia Holdings.
eMedia is a fairly formidable entity, whose assets include e.tv and news channel eNCA. Then there is the sprawling OpenView bouquet of satellite television channels, which includes eExtra, eMovies, eMovies Extra, eReality, eToonz, eSeries, ePlesier and the recently added international sports channel SportyTV.
For a small-fry investor like me, getting 100-odd eMedia shares could be seen as an irritant rather than a reward. But as one faithful reader pointed out: “You used to love eMedia. It was always one of your small-cap picks.”
That’s true. But in the past few years I have not kept close tabs on eMedia, and even skipped the last two AGMs. The eMedia share price also reflects a general lack of market interest — despite satisfactory (under the circumstances) operational performances. I suppose with Remgro also forking out a fat special dividend with its recent results to end-June, a small dividend in specie was always going to be a tad underwhelming.
With the smattering of eMedia shares in my portfolio, a decision had to be made: sell this little parcel, hold the shares for posterity or bulk up the holding. Quite honestly, the first two options looked likely. But the market threw a curve ball, which prompted a rethink.
It is important to note that Remgro unbundled its eMedia N shares, the low-voting ones. There is always a bit of a price difference between ordinary and N shares (as seen in Brimstone Investment Corp too) — though in the case of eMedia there really should be no price gap at all. eMedia is 80.3% controlled by investment company Hosken Consolidated Investments (HCI). Presuming there will be no large shares-for-cash issue, HCI’s dominant shareholding means there is no real rationale for maintaining an artificial control structure through dual-class shares.
At the time of writing, eMedia’s ordinary shares reflected a bid-offer spread of between 201c and 238c, with the last trade struck at 235c. The N shares, on the other hand, were bid at 179c and offered at 180c with trading volumes markedly higher than usual. That’s a startling price differential. Presumably Remgro’s larger institutional shareholders and big asset managers are not keen, or able (due to their respective investment mandate), to hold the eMedia shares, and are selling off their unbundled allocations post-haste. This overhang, which might take a while to clear, could weigh further on the eMedia N-share price.
Now here’s the thing. Using the price of the ordinary shares, eMedia is trading on a modest p:e of 5.4 and a nifty 11.6% dividend yield. That’s quite a dismissive ex-growth rating for a company that has generated 233c a share in collective headline earnings since 2021.
Even in the unlikely event of eMedia halving its dividend in the financial year ahead, you are still snagging one of the highest yields on the JSE
Now consider the lowly N shares at a price of 180c. These shares trade on a trailing p:e of less than four and yield an eye-popping 16%. So, even in the unlikely event of eMedia halving its dividend in the financial year ahead, you are still snagging one of the highest yields on the JSE.
For the record, eMedia’s dividend tally for the past five years adds up to 187c a share … more than the current price of the N shares. Fair enough, that’s in the past and the future is always uncertain … especially in the fast-changing media sphere.
Yes, there could be an argument that eMedia is in for a slog in the years ahead with plenty of capex needed to stay abreast of trends and the aggressive competition. Goodness knows, the company has already been through the wringer with costly legal spats with DStv — over its plan to cancel four OpenView channels — and the broadcast authorities, over the proposed analogue switch-off. Advertising revenue is difficult to grow and competition has moved well beyond the SABC and MultiChoice to other dynamic entertainment platforms such as Netflix, TikTok, Apple TV and YouTube.
eMedia’s largest shareholder remains optimistic, though. In its latest annual report HCI maintains that eMedia managed good results (headline earnings came in at 45c a share) considering it was lumbered with significant legal bills from the aforementioned disputes with DStv and the government. Then there was the cost of cancelling a long-term contract providing access to an underutilised satellite high beam.
HCI stressed these not-insubstantial costs were one-offs, adding that the “benefit of the successful [legal] claims and reduction of signal distribution costs will be felt for several years in the future”.
What HCI highlighted as “spectacular” was that eMedia’s audience share across all platforms held steady at 34%, with DStv registering 30.5% and the SABC 26%. Importantly, stalwart e.tv grew its prime-time market share to 21.2%. But it’s the new ventures at eMedia that seem to be gaining encouraging traction — with its OTT (over-the-top) video-on-demand offering, eVod, boasting viewing of more than 3-million minutes a day, while OpenView’s live activations topped 3.6-million households.
No big surprise then that eMedia’s advertising revenue hit a record R2.23bn in the past financial year, despite shrinking national television ad spend. I certainly hope the Remgro shareholders keep selling their eMedia shares. I’ve already been mopping up lines of N shares this week, and I’ll be keeping a beady eye on the price in the weeks ahead. One for the top of the bottom drawer, I reckon.
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