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Austar
Floods, fires and the GFC could not prevent Austar from increasing its operating profit by 11% in 2009. The November launch of the high-definition service has started strongly and will provide the company with the basis for its growth over the next few years. “In the last five years, Austar’s operating profit has grown at a compound annual rate of 18.3% - that’s impressive” Fat Prophets initially recommended buying Austar around $1.05 in August (Fat 436). Our last review of this stock was in November (FAT 450). Similar to many of the constituents of the broader ASX200 index, Austar switched to a short term downtrend, which saw prices dip to a recent low of $1.105. Should Austar continue its decline, expect firm support at the 50% Fibonacci retracement level at $1.033 as shown on the daily chart. Given the pace of the recent decline, we cannot rule out a period of consolidation in the near-term. Austar’s 2009 financial year net profit after tax of $58.8 million was a very good result considering the difficult environment its customers faced. The Victorian bush fires and Queensland floods early in the year distracted everyone from their ordinary lives. Regional Australians also felt the effects of the GFC so to generate a net subscriber addition of just over 21,000 during the year was commendable. Austar’s total subscriber base of 741,647 as at 31 December 2009 was 3% higher than the previous year, although marginally short of its 750,000 target. With the benefit of hindsight, Chief Executive John Porter will consider the decision to take the time to get the HD product as good as possible as a fortuitous one. Although customers were reluctant to sign up during the fourth quarter of the year, as at 14 February more than 23,000 subscribers were beginning to enjoy the benefits of the HD service. Based on Foxtel’s experience and the trends displayed in other subscription television businesses around the world, the rate of penetration of this service will grow rapidly – firstly as existing subscribers take it up and then as new subscribers seek it out. The additional monthly revenue generated by the MyStar digital video recorder and the HD service on top of that will contribute strongly to the overall growth in subscriber revenue. Almost one third of residential subscribers also have an additional outlet (a second set-top box) which generates very high margin revenue. More than 63% of total subscribers have 3 or more tiers of programming (i.e sports or movie packages or both) which also boosts average revenue per user (ARPU). Despite the sluggish growth in subscribers across 2009 (volume), the steady growth in ARPU (price) helped lift total subscriber revenue by 7.2% for the year to approximately $650 million. Other revenue of advertising and TV guides helped total revenue for the year to increase to $674.6 million. It is often at this point that some commentators on the company put down their pencils and claim the result to be a disappointment. But they have only considered half the equation and will have missed the best part of the story – sustained double-digit operating profit growth. Growing revenue is a basic aim of companies. Controlling cost growth, preferably at a lower rate than revenue growth is another desirable feature that leads to rising profits, all other things being equal. At Austar, management has demonstrated a terrier-like determination to deliver such operating profit growth, because they are incentivised to do so. In the last five years, Austar’s operating profit (EBITDA) has grown at a compound annual rate of 18.3%, including 2009’s GFC-muted 11% growth (within company guidance of 10-15%). That’s impressive. This story continues in the Fat Prophets Members area. To get the complete report, join Fat Prophets today! Article Directory: http://www.articledashboard.com Visit us at www.fatprophets.com.au |
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