Fairfax ABC

The management and board of Fairfax Media will be closely watching the company’s sharemarket performance for the next few weeks as the shares undergo their biggest test for around two years. In two weeks, shares in the Domain property website listings start trading on a deferred settlement basis (the official start date for full ASX trading is a week later, on November 23). From then on, the question will be for many investors, especially at the big end of town, “do we need to hold Fairfax shares any more?” The answer will be vital for the strength of the Fairfax share price and the longevity of its newspaper operations.

The path of the Fairfax share price (1.0975 close yesterday) from the end of this month into early 2018 will tell just how popular the company will be with investors. Demand from investors for Fairfax shares pushed the price up to a high of $1.10, a rise of 16%, in October. More than 130 million Fairfax shares were traded in the past couple months as shareholders loaded up to maximise their Domain spin off stakes. The Commonwealth Bank and US group Fidelity were two of the biggest buyers.

But with Fairfax shareholders yesterday approving the spin-off of the Domain property website business at a meeting held before the annual meeting, the question is what will support Fairfax Media shares around their current level. Investors received no guidance in this area at the AGM when chair Nick Falloon and CEO Greg Hywood failed to provide a trading update in their prepared addresses.

The share price in the future will depend on the strength of that trading performance of the company’s remaining assets — the metro and community/regional papers, events, 54% of Macquarie Radio and 50% of Stan, the streaming video venture owned equally with Nine. Fairfax will be a single asset company — with little to cushion the continuing slide in legacy media businesses such as print. The question now for the future is whether Fairfax will slowly liberate the value in the rest of its Domain stake to finance the continued existence of its newspapers, or will it choose to slash and burn the papers and other assets.

The 60% of Domain will be the cash cushion that will finance much of the company’s future journalism, either via the contribution from dividends or the realised cash value of the holding based on the Domain share price. The Domain spin-off story first emerged in early 2016 — it was denied, but later that year Fairfax revamped its accounts and asset values to free Domain and create a separate business. The shares were trading around 75 cents when the idea first appeared in February of last year. That’s where Fairfax shares could very well end up, if big investors decide they no longer need to hold Fairfax shares.