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A recent car trip to a nearby suburb took an hour when it normally takes 15 minutes. Traffic congestion was horrible, despite being outside peak hour. It’s no surprise that population growth is becoming a big political issue as congestion reduces living quality.
As my car crawled along busy roads, an interesting radio program provided solace. Some lively presenters made the pain of bumper-to-bumper traffic slightly more bearable. I listened to their program, and the ads within it, for an hour, cursing the traffic.

After losing interest in radio years ago, it is becoming a bigger part of my media diet. Like many, I mostly listen to radio in the car. As capital-city traffic congestion worsens, and car trips take longer, consumption of radio programs should, in theory, rise. 
Yes, it’s a long bow to suggest traffic congestion will spark a radio renaissance and that commuters will flock to commercial radio programs again. Also, it’s dangerous to base investment ideas on tiny samples or extrapolate personal experience too broadly.
Commercial radio faces immense challenges. Internet radio stations and music-streaming services continue to disrupt the industry. Why listen to radio and rely on the DJ’s music choices when one can have 40 million songs via a smartphone and Apple Music?
Intense pressure from online advertising channels is a persistent threat to old media such as radio, free-to-air TV and newspapers. Companies can get far cheaper, pinpointed advertisements through online search engines, although their effectiveness is not always clearcut. 
Long term, self-driving vehicles could badly impact commercial radio providers. Radio is perfect for current traffic congestion: you cannot watch TV or play with your smartphone while driving a car (although many do the latter). Radio is still the best medium to reach car drivers (electronic outdoor ads are also gaining in popularity).
Autonomous vehicles will free people up in all sorts of ways. Watching TV, working on a laptop or sending texts on a smartphone are all possible when a computer does the driving. Radio might seem a lot less attractive in cars when a world of video entertainment is available. 
Radio surviving
For all the challenges, radio remains in the media mix for advertisers. Nearly 10.5 million Australians listened to radio in 2017, up 200,000 from a year earlier, according to Commercial Radio Australia. Nine out of 10 of those listened to radio as much or more in summer.
Radio is popular with 18-24-year-olds. An estimated 79 per cent of them tune into commercial radio every week, presumably on their way to and from work. Radio apps that allow podcasting and live radio streaming are helping to grow younger audiences.
Digital radio listening is providing new advertising revenue opportunities. More than 3.6 million people listened each week to digital radio in the five main capital cities, Commercial Radio Australia data shows.  This is not to downplay the risks facing radio. One need only look at the performance of radio stocks to understand the sector’s challenge. But these trends show there is perhaps a little more life in radio than the market is factoring into valuations.
Tuning in to radio stocks
Southern Cross Media Group and HT&E (formerly APN News and Media) are the main ways to play the radio theme. Southern Cross has 78 commercial radio licences and owns the Hit and Triple M networks. The company also owns 104 mostly smaller television channels. Radio accounted for 44 per cent of Southern Cross’s FY18 revenue; TV had the rest.
HT&E is more diverse. It owns the Australian Radio Network, Adshel (an outdoor-advertising and street-furniture provider) and some small digital investments. Radio is worth about 46 per cent of HT&E’s revenue and Adshel provides a roughly similar amount.
Both stocks have underperformed. Southern Cross Media’s one-year total return (including dividend reinvestment) is minus 15 per cent and its five-year return is slightly negative. The stock has tumbled from a high of $1.47 to trade at a 52-week low of $1.07.
Chart 1: Southern Cross Media GroupSource: The Bull 
HT&E’s total return is down 24 per cent over one year and the stock is down from its 52-week high of $2.77 to $1.83. If there is an improving outlook for the radio sector, the market is not yet factoring it into valuations. 
Chart 2: HT&ESource: The Bull 
Southern Cross offers the better value at current prices. Its Hit Network performed well in the first metro radio ratings survey for 2018, showing gains across all five capital cities. The loss of the popular Hamish and Andy program last year was a blow, but the replacement, Hughesy and Kate, has made a good start on Hit Network, after defecting from KIIS FM.
Ratings for the Hit Drive program were up in Melbourne and down slightly in Sydney. The Hit Melbourne and Hit Sydney breakfast programs had higher ratings; Hit Melbourne is the breakfast leader in that city, but Hit Sydney has a small share in that market. 
Improving drive-time ratings for Hit Network are a good sign, as is Nine Network’s better TV ratings this year thanks to hits such as Married at First Sight. Southern Cross Media is affiliated with Nine and the latter’s success bodes well for Southern’s regional TV stations.
HT&E, in contrast, had mixed ratings success. Its new KIIS Drive team, Will & Woody, had a small rating fall in Sydney and Melbourne – arguably a good result given they have a lower market profile than Hughesy and Kate. The network’s flagship Kyle & Jackie O program was down slightly in ratings but remains the top FM breakfast show in Sydney.
It is too soon to be definitive about Southern Cross after the first ratings survey for 2018. One good survey is not evidence of a trend. But there are signs of an emerging metro radio recovery and improving outlook for Southern Cross’s regional TV operations. The market is paying little attention to the stock at the current share price.
At $1.02, Southern Cross trades on a forward Price Earnings (PE) multiple of about 10 times FY18, based on the consensus of a few broking firms (too small to rely on). An expected yield above 7 per cent, fully franked, is another attraction given the dividend looks reasonably sustainable. 
Southern Cross’s average PE over the past four financial years was 11.2 times, using Morningstar data. The forward PE multiple of 10 is a decent valuation discount to the four-year average, given the company’s outlook is slowly improving. It’s also an opportunity for experienced investors who are comfortable with small-cap stocks and the risks of buying into turnaround situations in challenged sectors.

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• Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article you should consider the appropriateness and accuracy of the information, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at April 4, 2018.