Ten Network Holdings Limited - Licence fee rebates to lift earnings

The decision of the Australian government to rebate licence fees payable by television stations this year and next effectively reduces the operating expenses of Ten Network Holdings (TEN) with a resulting increase in forecast earnings. While the announcement from the Minister (Senator Conroy) based the decision on protecting the amount spent by commercial television on Australian content, there appears to be no formal requirement on TEN or other TV stations to increase their program spending. So the rebate, considered in isolation, will flow directly to pre-tax earnings. Some of the benefit will then flow back to government via higher taxes (30% of the pre-tax uplift). BBY has adjusted FY10 and FY11 earnings to reflect the announced rebates.  We also assume that the 50% reduction in FY11 will be continued thereafter, as part of a general re-structuring of government charges relating to use of spectrum.Our 12 month share price target increases from A$1.79/sh to A$2.10/sh (being the FY11 blended DCF/DDM valuation). We retain a BUY recommendation.