GMA7
The 1st half earnings of GMA7 this 2023 are not looking good as compared to the same period a year ago. The earnings are down by at least 70% and it seems like inflation is hitting them hard as per their disclosure. If we put an assumption that the earnings in the 2nd half of 2023 are the same as a year ago, then GMA7 will end up with an annual net income of 2.63 billion PHP which is down by at least 50% from a year ago. The problem is that hitting those quarterly earnings from a year ago is unlikely because revenue mostly came from political advertisements. Now that the presidential campaign is over, GMA7 had to go back and source its revenue from big advertisers. Unfortunately, these advertisers have cut back television ad time since they are moving their resources to digital advertisement. GMA7 may have been monopolizing the broadcasting segment in the Philippines but ad money nowadays is mostly found in the digital space in which they are facing lots of competitors. Inflation may have been going down but it’s not going down as fast as it could hence will continue to negatively affect GMA7’s profitability. The high inflation environment causes lower consumer spending hence giving reasons for GMA7’s clients to further cut ad spending. What’s unusual from their last quarter report is that they suddenly incurred a short-term debt amounting to 3.5 billion PHP whereas historically, they never had a debt this high since 2016, not even reaching a billion PHP. We don’t exactly know where they will use the proceeds from this debt but for sure it’s a hefty price to pay because interest rates are currently high and would affect GMA7’s future net income.
If we assume that GMA7 miraculously achieves the said annual net income of 2.63 billion PHP in 2023, it is unlikely that it will be able to sustain the last declared dividend amounting to 1.10 PHP/sh. The last time that GMA7 earned this much was in 2019 and they declared a dividend of 0.30 PHP/sh which only yields 3.63% at the current trading price of 8.25 PHP/sh. To be fair, the dividend of 0.30 PHP/sh was only at a 45% dividend payout ratio relative to the earnings per share during that time. GMA7 has a 5-year average dividend payout ratio of 85% hence can probably sustain a dividend of up to 0.66 PHP/sh which yields around 8% at the current trading price of 8.25 PHP/sh.
If the high inflation environment is indeed greatly affecting GMA7’s performance, then shareholders will have to take a deep breath because there are no clear indicators that things are getting better at the macroeconomics level. Due to elevated inflation, analysts are not expecting the BSP to cut the interest rate until the middle of next year. That being said, some risk-averse dividend investors have already sold their positions due to the said uncertainties. They are, however, assuming GMA7 to underperform hence waiting for GMA7 share prices to drop at specific price points (margin of safety) that would give them a good dividend yield relative to the forecasted 2023 annual net income and the same time beat the inflation rate. On the other hand, some investors are not buying GMA7 shares until they see innovation and diversification of income. For context, 95% of GMA7’s revenue is from advertisements mostly through TV. The next foreseeable catalyst of GMA7 is the next presidential election campaign which is 5 years from now. But then again, is the majority of the population still into TV when that time comes?
