Consolidated Media Holdings (CMJ) Update

Consolidated Media Holdings (CMJ) reiterated their $4.20 target price from Australian stockmarket analysts from Citi.

Consolidated Media Holdings Limited (CMJ): FOXTEL Refinancing on Hold, Valuation Upside Remains

FOXTEL refinancing on hold — The FOXTEL Board has decided to defer refinancing its net debt to 3.0x EBITDA, the proceeds from which would have been paid out to shareholders. Reason given: less than favourable credit market conditions.

CMJ FY09e distributions still receive a boost — However, FOXTEL intends to utilize existing credit facilities to fund the payment of $25m to CMJ in July 2008. This will be in addition to FY09e free cash flow distributed.

A deferral of refinancing, not a change in Board policy — While FOXTEL will not refinance in the short term, it will review a potential refinancing as credit market conditions improve. We stress this is not a change to FOXTEL Board policy, but simply an inopportune time to raise debt.

Material CMJ dividend impact — We conservatively remove all debt funded FOXTEL distributions from our CMJ forecasts. However, FOXTEL will continue to distribute 100% of free cash flow to shareholders. We reduce FY09e and FY10e CMJ DPS by 50% and 34% respectively.

Earnings impact — Higher forecast FOXTEL debt (funding the distribution in July 2009) leads to higher interest costs; FY08e CMJ EPS falls 4.0%. However, lack of future refinancing sees FY09e EPS increase 0.9%.

No impact to FOXTEL equity value — Given the distributions in question were all debt funded. We therefore reiterate our $4.20 CMJ target price.