Tuesday, February 13, 2007

Fairfax Record first half profit

Fairfax Media Limited ( ASX:FXJ) has produced a stunning result by reaching $1 billion in its first half year profit. The results were strong except for a poor result in advertising revenue from New South Wales.

The Chief Executive Officer (CEO), David Kirk, informed the market that there had been a great fluctuation in advertising revenues between the different states. He also comment on rumours that Fairfax had received takeover approaches. He denied that they had been in talks with anyone but did mention that the business was very interested in moving into regional radio.

Within the last two years, permanent costs have been reduced by $44 million. The Age building is also up for sale with a potential price tag of $60 million.

This result shows upper management finally making some nice gains for their hard work. In particular I was impressed with the reduction in costs. I was also impressed at the diversity of the company where they were still able to make a record first half profit despite a poor result from NSW advertising revenues.

Fairfax is currently sitting on a PE ratio of 20 with a dividend yield of 4%. Analysts expect profit to grow in the next two years to 29 cps compared to the current 24 cps. There is a built in premium to this share as it is a potential takeover target and it has a good management operating the business. They are positioned well for the future and if you can pick them up at a PE around 15 you will be getting a good business at a reasonable price. A price earnings ratio of 15 would require a share price of $3.60. Using the future estimated EPS for next year of 27c the PE ratio of 15 would require a share price of $4.05. Still a long way off from the current share price of $5.00

Good Luck Investing.

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