Investors doubt Fairfax rescue

Investors and analysts abandoned Fairfax Media, with some even predicting a short term death for its bleeding metropolitan newspapers.

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Fairfax shares fell back to near record lows, closing 8.5 per cent weaker at 59.5 cents after a 7.4 per cent jump on Monday.

And analysts gave avoid or neutral ratings to the company’s stock despite the announcement of drastic cost cutting measures on Monday, including slashing 1,900 jobs.

As well as the jobs, Fairfax will shut two printing presses and start charging people to view its key websites – including The Age and Sydney Morning Herald (SMH) – to try and ensure its survival in the digital age.

The action has also brought planned job cuts at rival publishers News Ltd to a head, with sources telling AAP similar numbers of redundancies would be announced there on Wednesday.

Morningstar equities analyst Tim Jones values the stock at just 45 cents a share as the value of its mastheads continues to plummet along with circulation.

He also planned to lower his current full year net profit forecasts of $203.8 million.

“The big question I have over Fairfax is monetising its digital content,” he told AAP.

“There aren’t really any examples of international success of companies making significant returns from that. “How the business evolves from here creates a lot of uncertainty and risk I think for investors.” CCZ Equities consultant Roger Colman said News Ltd’s huge chunk of the volatile newspaper market was too big for Fairfax to survive.

“The SMH and Age as a combination must be trading at a loss for the second half,” he told AAP. “They’re in real trouble when you shut down printing plants.”

He predicted that if half of the newspapers’ readership converted to $100 a year paywalls, current revenue of about $500 million could plunge to $40 million to $50 million.

He said the company’s last profit release in February showed the average online reader looked at the website 1.28 seconds a day on average compared to 20 minutes for a newspaper reader. That along with the new paywall would make it difficult to keep audiences and generate large online advertising revenue, he said.

Citigroup analyst Justin Diddams was cool on Fairfax shares, questioning whether earnings might fall more, as was Goldman Sachs’ Christian Guerra who questioned even whether the measures went far enough.

The other issues weighing on the company include turmoil about the mass job cuts, its effect on the quality of journalism and the intentions of the world’s richest woman Gina Rinehart buying into the company.

Ms Rinehart’s stake stands at 18.7 per cent and she has asked for three board seats and wants to be able to influence editorial content, which is being fiercely resisted.

“I think the board is looking a little bit vulnerable,” City Index chief market analyst Peter Esho said, while saying a takeover could not be ruled out. Ms Rinehart did not respond to requests for comment.

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