Ten Network Holdings Limited (“TEN”) - Episode One

TEN is providing some special reality TV entertainment that makes fascinating viewing.  Probably not of much interest to its normal target audience but definitely of strong interest to its bankers, its shareholders and other players in financial markets.

As reported by TEN in its half-year results announced last week, the company is trading at a loss and is detrimentally exposed to an expected ongoing decline in the Free to Air advertising market and has decreased the book value of its television licence by AUD214 million. 

Not surprisingly the share price of TEN has fallen dramatically – down more than 72% over the past 12 months including a massive fall of 39% in the two days since the results were announced on 27 April 2017.

Equity markets, through movements in the share price of a company, provide a powerful signal for the expected future prospects of that company.  The future prospects for TEN look dim.

The enterprise value of TEN is currently about AUD130 million.  This figure reflects the market view on the total value of all of its assets including the television licence.  It is no wonder that the Board of TEN decided to decrease the book value.

But the Board has other major issues to address, the most pressing of which is the financial viability of the company. 

As reported by TEN, the company is expected to continue to lose money with a projected EBITDA loss for the current financial year of AUD25 million to AUD30 million.  To fund these losses, the company can draw on an existing loan facility.  But not for much longer – this loan is due for refinancing in December 2017.

At the risk of stating the obvious, ongoing negative cash flows are not sustainable.

The financial dilemma gets worse.  The existing loan (provided by CBA) is guaranteed by some major shareholders.  The fact that a guarantee was required in the first place is a concern – but the trading performance of TEN has deteriorated since that loan was made.

The Directors of TEN state “there is a material uncertainty that may cast significant doubt on [TEN’s] ability to continue as a going concern” but they hold reasonable expectations that a refinancing will be effected.  Indeed.  By the grace of the guarantors methinks.

Life in the corporate jungle is tough and merciless.  A weak or wounded participant soon becomes prey for a predator.

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