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Fairfax NZ 'only worth pennies to stock'

NZ NewswireNZ Newswire 12/05/2016 Jonathan Underhill

Fairfax Media's New Zealand business is worth just 5 Australian cents to the company's stock price on a discounted cash flow basis and divesting the assets could help unlock the value of key assets such as the Domain Australian real estate website, according to brokerage First NZ Capital.

In a report titled "FXJ starts the self-help process", the brokerage said Fairfax was "exposed if (it) does nothing".

Its weak share price meant Domain was undervalued "and has left FXJ exposed to a private equity bid and possible break up," the report said.

"It is positive that the company appears to be taking steps to close the valuation gap and prevent the upside in Domain being extracted by an alternative owner."

First NZ retained its 'outperform' rating on Fairfax stock with a target price of A$1.10, which is about a fifth higher than its current price on the ASX. Fairfax rose 4.7 per cent to 90 Australian cents on Thursday.

Fairfax and APN said on Wednesday they were in exclusive talks about a potential merger of their New Zealand media assets this year, which would all be poured into an NZX-listed NZME, APN's local unit.

If such a combination passes the New Zealand Commerce Commission's scrutiny, Fairfax would initially have a holding in the combined kiwi media company.

The brokerage said if Fairfax follows the planned path of APN and demerges its New Zealand business prior to a merger with NZME, it would result in Fairfax's complete exit from New Zealand and "materially reduce FXJ's print/publishing exposure."

Deloitte drew similar conclusions in its independent evaluation of APN's demerger plan, saying the remaining Australian company would be free to pursue growth in its Australian radio and outdoor assets.

Deloitte says while the bill was introduced in March, the looming federal election means it is unlikely any significant media reforms would be enacted in 2016.

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