Cramer Discovers Central European Media Enterprises

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Central European Media Enterprises (CETV) shares will pop sharply on the open and likely be volatile for a couple of days because Jim Cramer mentioned it as a buy on his popular CNBC show Mad Money. Cramer moves stocks because he has lots of followers. He also has lots of detractors which is why I expect some volatility. Cramer’s newfound bullishness on CETV is based upon the planned opening of a casino in Slovenia by global gaming giant Harrah’s Entertainment. Cramer wanted a more direct play on Slovenia which led him to CETV.
I have a long standing low $60s target on CETV. It is a thinly traded stock subject to big moves in either direction. I plan to put in an order to sell about one-third of client holdings around $59 this morning just in case the pop off Cramer’s comments gets out of hand. CETV is the largest individual stock holding in most client accounts so if this sale goes through, it will just be a trimming action to capture profits as has been done with several other Northlake holdings over the past few months.
A summary of Cramer’s comments on CETV and some additional thoughts are in the “Extended Comments” section

Weekend Box Office Report: Thanksgiving

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With the box office in a seasonally important season, I plan to issue occassional updates when key movies open or key weekends pass. This past Thanksgiving weekend generally contained good news for the big Hollywood studios and that means investment implications exist for Disney, Time Warner (Warner Brothers), Viacom (Paramount), Sony, News Corporation (20th Century Fox), and Lions Gate Entertianment. Follow the “Continue Reading” link below for this week’s update.

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NY Times Article Provides Support For Northlake’s ETF Strategy

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Over the weekend, the New York Times ran an article about a new study of investment strategies. The article supported Northlake’s ETF rotation strategy by endorsing a strategy of monthly rotation among actively managed mutual funds based on four separate macroeconomic factors. This article caught my eye because after more than two years of developing and using Northlake’s Market Capitalization and Style models I still have seen very few money managers promoting a similar strategy.
What I find most notable about this article is that the authors of the study are using a multi-factor model to rotate among mutual funds using different strategies for active management. This is very similar to the strategy Northlake employs for the ETF portion for client portfolios. Northlake has adapted two models developed by Ned Davis Research which signal when current conditions in the economy and the stock market support that a certain size company or a certain style of company (growth or value) are more likely to outperform. The results of the research in the article and Northlake’s own backtests reveal that this strategy can outperform the market by significant margins over a multi-year period….

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Follow-Up Data Points From Disney Conference Call

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After reading through analyst commentary on Disney (DIS) this morning I wanted to provide a few additional data points that were not included in my earnings summary. These points do not change my conclusion that the quarter was slightly worse than expected and the outlook for share gains in the next few months is worse than I previously expected. However, 2006 still looks like a strong year with multiple drivers which should limit downside in the shares to this morning’s initial decline due to the disappointing quarter….

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Disney Reports Mixed Quarterly Earnings

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Disney (DIS) reported mixed 4Q05 results, slightly worse than analyst estimates on a segment basis. Analysts didn’t seem too concerned about the quarter on the conference call, however, as there were very few questions about the details. Rather the focus was on long-term issues and the forecast for 2006. I think the questions on long-term issues may have been heightened by the fact that this was Bob Iger’s first call where he was the whole show. On that front, I think he did quite well. He came across as very sincere and accepted the challenges facing traditional media companies. But he was equally strong in discussing how DIS is not afraid to confront the new environment and has lots of significant projects going in wireless and broadband distribution….

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Latest Harry Potter Film Tracking Above Expectations

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Despite widely expected success, executives at Time Warner (TWX) have to be happy with the $102 million opening weekend for the latest film in the Harry Potter series. Even adjusting for ticket price inflation, the opening of Goblets of Fire was the strongest of any film in the series since the first movie. International box office is also off to a fast start and looks set to match or exceed prior films in the series.
Click here for tables comparing the Potter films opening weekend and full box office runs…..

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Previewing Disney’s September Quarter Earnings

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Disney (DIS) reports after the close tonight. Current consensus estimates call for EPS and revenue of 18 cents and $7.9 billion, respectively. EPS are down a penny from a year ago and revenue is up 5.5%. Operating income growth is projected at just a 2.2% gain. These headline figures mask a better underlying story as DIS has already announced a $275-300 million write-off at its studio related primarily to Miramax films due to the departure of the Weinstein Brothers. DIS had several big budget flops of its own in the quarter so presumably these are included in the write-off. If not, that could be the source of a negative surprise. I am not that concerned about the movie studio as investors will put the tough quarter behind them due to the success of Chicken Little and likely success of upcoming films The Lion, the Witch, and the Wardrobe based on the Narnia series and the sequel to Pirates of the Carribean which returns its entire cast. The original Pirates grossed over $300 million at the domestic box office and brought in another $260 million in the home video window. That makes up for a bunch of Brothers Grimm….

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Central European Media Enterprises: News From Prague Meeting Is Good

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The news from Prague about last week’s analyst meeting for Central European Media Enterprises (CETV) sounds good. Nothing earth-shattering but a good turnout, solid presentations by local operating management, and a reiteration of guidance with increased detail on a country-by-country basis all bode well for the shares. I still think the seasonally strong 4Q will reinforce the long-term growth story and set up a transition in focus to another year of 20% growth in 2006. If that occurs, I think the shares can move up toward my target of low $60s over the next three or four months….

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Mixed Quarter For Lions Gate But Results Set To Improve

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Lions Gate Entertainment (LGF) reported a mixed quarter with revenue and free cash flow slightly ahead of estimates and EBITDA and EPS at the very low end of the range of analyst estimates. The disparity among theses figures is due to film accounting which often leads to mismatches between cash and non-cash expenses and the timing or revenue and expenses related to recent theatrical releases.
Overall, the results were not good enough to support the stock after the recent run related to the box office success of Saw II. However, the damage is fairly limited as in concluding remarks just prior to Q&A, management raised free cash flow and revenue guidance for the fiscal year ending June 2006.
LGF is a tricky stock. On the one hand, overall success on an increasing number of theatrical releases is creating long-term value for shareholders. On the other hand, the rising number of wide releases increases near-term spending on prints and advertising which pressures results against year-ago results, particularly at the EBITDA line. Ultimately, as the release schedule stabilizes at the higher level and assuming that the overall success rate is maintained, the financial results will catch up and near-term results will be more reflective of the value being created at LGF. There should be some evidence of this in the next two quarters based on the increased free cash flow guidance.
Unfortunately, these conflicting trends make LGF a tough stock to own. You have to have patience to let asset value build through the volatile quarterly results. Since I believe that LGF is a valuable asset not likely to remain independent over the next couple of years, I am sticking around but staying small. A takeout on current free cash flow would probably occur in the range of $13-$17, providing plenty of upside reward. Downside support is around the $8 level if there is a continuation of poor quarterly results.

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With Private Equity Sniffing, NTL Getting Interesting

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Speculation reemerged two weekends ago that the NTL-Telewest (NTLI-TLWT) deal may be intercepted by private equity investors. As reported by the UK newspaper The Sunday Express, Ajax Partners is considering joining a group of private equity firms with deep media experience that had previously been rumored to be interested in the deal. The original group first came to light when the Wall Street Journal reported on it in early October. At that time, I wrote on StreetInsight.com that this validated the value that existed in the merged entity….

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