Since the beginning of 2014, shares of East Africa’s largest Media company have tanked by 73% from the highs of Sh 345 to trade at a six year low of Sh 100 spotted during Monday’s trading session.
As at 1st January 2014, Nation Media Group value at the Nairobi Securities Exchange stood at about Sh 65 billion as compared to Sh 18.9 billion on Monday 7th November 2016. The total damage? A decrease in more than Sh 46 billion ($457 million) from its market capitalisation, the value of a company based on its share price.
In our view, investors are panicking because the company’s major revenue stream is already declining mainly as a result of digital disruption. Over 80% of Nation Media Group’s revenue comes from print advertising, the other from TV business and less than 5% from the digital business.
During the half year 2016 results two months ago, the company reported a 20% drop in profit before tax with print revenue falling by 9%. Revenue from all its television business was unchanged as earnings from the group’s digital business grew by 90% though this accounts for less than 5% of its total revenues. The CEO also admitted that the new age consumers are not consuming their products in the traditional way but they plan to grow the digital division’s contribution to total earnings to 10% within the next three years. But it seems investors aren’t buying this argument.
To support its operations and “continue” paying the juicy dividends, NMG resorted to cost cutting measures which involved closing down its radio business and consolidating its two kenyan based TV stations resulting into a number of employees being declared redundant.
Also worth noting is that the company in March this year commissioned a new printing press at a cost of more than Sh 2 Billion, a move that most analysts thought was shallow saying the Print business is “broken”. However, the management during an investor briefing argued that they were convinced that the “future of the newspaper in Africa was bright and grossly under-tapped”. According to the team, the new facility will give NMG a unique advertising edge.
