Why is UBS so uncertain on the Seven West (ASX:SWM) share price?

two young boys dressed in business attire and wearing spectacles sit side by side and watch closely an old fashioned television box receiver with built in wire ariels.

Shares in media giant Seven West Media Ltd (ASX: SWM) are trading 4.42% higher today at 59 cents apiece.

That’s well ahead of the benchmark S&P/ASX 200 Index (ASX: XJO)’s climb of 0.2% today.

Seven West shares are coming off a strong finish to the session on Tuesday when the market responded positively to its annual general meeting.

Investors were quick to pile into the company’s equity pool, sending its share price almost 5% higher on the day yesterday.

Perhaps they were impressed by the company’s dominance in the free-to-air television segment in FY21, where Seven reclaimed the top position from its peers.

This result coincided with the company’s The West newspaper outperforming its competitors last financial year.

The AGM had Seven West’s chairperson Kerry Stokes predicting the trend will continue well into FY22 judging by the group’s results so far.

Why then, amid this positive commentary, is investment banking giant UBS still undecided on the outlook for Seven West’s share price?

Read on to find out more.

UBS still unclear on Seven West’s results

Curiously, in a note out of the broker’s camp, UBS advises it is waiting on commentary from media competitor Nine Entertainment Co. Holdings Ltd (ASX: NEC) before it can make up its mind.

Specifically, it wants to hear what Nine says in upcoming releases to examine if Seven West’s results are truly organic.

The broker says it isn’t sure yet if Seven is the beneficiary of a booming TV ad market or a larger than expected share of the ad market.

If it is the overall ad market then UBS reckons Seven West’s results may not be truly reflective of an outperformance.

This reminds us of a saying from investing hall of famer Charlie Munger who is Warren Buffet’s right-hand man:

…If you’re a duck on a pond, and it’s rising due to a downpour, you start going up in the world. But you think it’s you, not the pond.

UBS appears to be noting this advice in considering whether Seven West’s results may just be from the proverbial pond rising.

Not only that, UBS also wants further evidence that Seven can maintain its outperformance in streaming via its streaming service.

These points, UBS says, are what is keeping it from upgrading its forecasts beyond the current financial year.

For instance, while it upgraded its earnings per share (EPS) target for Seven West by 9% for FY22, it has made no changes to subsequent years – for now.

Despite the reservations, the broker maintained its buy recommendation on the share, reiterating its 95 cents per share price target in doing so.

At last check, this implies an upside potential of 62% from UBS’s valuation.

Seven West share price snapshot

It’s been a year of greenery for the Seven West share price. In the past 12 months, it has soared over 197%, rallying more than 80% this year to date.

These returns are well ahead of the broad index’s gain of around 20% in that time.

The post Why is UBS so uncertain on the Seven West (ASX:SWM) share price? appeared first on The Motley Fool Australia.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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