Fairfax Media has shifted its highly successful online real estate business Domain into a new reporting division to help establish is true value, according to The Australian Financial Review (Fin Review).
The Australia-based publisher, which is expected to report its financial results August 10 made the announcement ahead of time to allow analysts to formulate their valuation models prior to the earnings being reported, the report says.
As part of the announcement, Fairfax provided historic earnings for Domain which showed total revenue in the first half of the 2016 financial year jumped 62.8 per cent to $153.9 million, compared to the corresponding prior period.
Its earnings before interest, tax, depreciation and amortisation rose 73.8 per cent to $65.7 million in the same time period.
The Fin Review says in May, Domain was valued at $2 billion by Credit Suisse analyst Fraser McLeish, who told clients that Domain is being undervalued in Fairfax’s share price. Fairfax has a market capitalisation of $2.4 billion.
The report says the move to separate the Domain business from Fairfax’s publishing division is backed by the group’s largest shareholder Ausbil Investment Management chief executive Paul Xiradis.
Xiradis,whose fund owns 7.8 per cent of Fairfax, reportedly believes the value of Domain was not properly recognised when the division’s financial results were combined with those of its Metro Media publishing division, which includes major titles including The Australian Financial Review, The Sydney Morning Herald and The Age.
He told the Fin Review he’s been looking for this to occur for some time.
“When we look at Fairfax, we come up with our own Domain figure rather than under Metro Media,” he told the newspaper.
“From a governance point of view, if fair value isn’t assigned to Domain, they need to liberalise that.”
The report also says Fairfax’s previous accounting standards have not allowed recognition of the value of Domain, so the creation of a new reporting segment made sense.
However, the change means that Fairfax will book a close to $1 billion pre-tax non-cash writedown on its publishing assets.
Fairfax’s Australian Metro Media division will record a $484.9 million pre-tax impairment, while the Australian Community Media will book a $408.8 million pre-tax impairment. The company’s New Zealand business will report a $95.3 million pre-tax impairment.
The Fin Review adds the change in accounting structures will again re-ignite speculation about whether Fairfax could look to sell Domain or spin it off into its own ASX vehicle.
Asked about a possible sale or listing of Domain, Xiradis said: “That’s always been a possibility, but I think that managements’ objective here is to show the value of Domain within Fairfax.”
Fairfax Media chief executive Greg Hywood reiterated that there are no plans to remove Domain from the rest of Fairfax.