What does SWM do?
Seven West Media [ASX:SWM] is a media company, predominantly exposed to free-to-air television. It owns the Seven Network — the highest rating network, ahead of Nine and Ten.
Free-to-air television is one of those ‘structurally challenged’ industries. The advent of different types of media means TV networks no longer command the influence they did in years gone by. The TV advertising market is now mature and low growth.
While SWM still generates significant cash flows, owning to its dominant industry position, the industry is now considered a low growth one.
What’s happening to Seven West Media’s share price?
The SWM share price has been volatile lately. After rising strongly from the lows reached last year, the shares corrected lower. Then, on Tuesday, the share price dropped 10%, before bouncing around 7% today.
What’s going on?
Earlier this week, SWM’s rival Nine Entertainment [ASX:NEC] warned that its TV advertising revenues would be lower. It also said it expected the TV ad market to grow slower than it previously forecast.
The warning hurt SWM’s share price too, as you can see in the chart below.
What now for SWM?
While the industry has its challenges, SWM remains well placed. As mentioned, it generates strong cash flows, which allows it to pay a healthy dividend. Based on forecasts for 2017, SWM trades on a dividend yield of around 7.5%.
Given the rally to nearly $1.10 from the low of nearly 65 cents in November last year, a pullback shouldn’t be surprising. So far, the correction hasn’t disrupted the share price uptrend that got underway earlier this year. Given the attractive valuation, it suggests this is a good buying opportunity.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.
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Editor, The Daily Reckoning