One week ahead of its March 2nd 4Q05 earnings report, Central European Media Enterprises (CETV) announced an increase in its ownership of its operations in Romania. In a negotiated agreement with its partner, CETV is paying $27.2 million for an additional 5% stake in Pro TV. CETV will now own 90% of Pro TV. The remaining 10% ownership is subject to a previously negotiated put option whereby the Romanian partner can put at in 1% increments with price subject to an independent appraisal and a minimum floor of $1.45 million for each per cent of ownership.
CETV has been steadily increasing its ownership in all of its operations. I think this is an excellent expenditure of corporate resources as the prices have been good and increased ownership mitigates the risks of operating in emerging markets. CETV now controls a majority stake in all of its operating and license companies….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-02-27 08:44:052006-02-27 08:44:05Central European Media Enterprises Increases Stake in Romania at Attractive Price
The market has reacted coolly to the settlement between Time Warner (TWX) and Carl Icahn as TWX shares given up all their gains since the company reported earnings and the Icahn-Lazard report was released. I think the additional debt funding a larger share buyback is incrementally positive for TWX shares, especially if visibility for upper-single digit EBITDA growth in 2007 and 2008 comes into focus.
I have adjusted my spreadsheet incorporating some basic assumptions about the settlement but the result is stand by my recent decision to lower my target price based on 2006 estimates to $20. Incorporating my new assumptions did raise my year end target price slightly to $20.42. I assumed that the company would buyback an additional $2.5 billion in shares over and above my previous assumption of $12.5 billion (all at $18 per share). In total, I have the company shrinking the share base by 833 million shares in 2006 from the year end total of 4.7 billion. The $15 billion buyback in 2006 doesn’t really add much value to shareholders as it is merely replacing debt with equity in the enterprise value calculation. My impression is that analysts and management already assumed $500 million in 2006 cost savings in estimates and guidance so that part of the settlement doesn’t add value either.
In 2007 and beyond the deal could begin to add value as the share shrink begins to bite….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-02-27 08:33:252006-02-27 08:33:25Icahn and Time Warner Settle: Upside If TWX Can Sustain Growth
Clear Channel (CCU) shares have given back most the gains which followed the solid 1Q06 guidance the company provided with its 4Q05 earnings report. In my summary of the earnings, I said a brief rally in CCU shares could occur. I didn’t think it would quite this brief. Three issues continue to trouble the shares. First, competing radio companies are consistently reporting weak pacings and guidance for 1Q06. Second, if you look at the details of CCU’s 1Q06 commentary, despite the 6% gain in January radio pacings, February and March could be negative. Third, radio stocks are still at a significant premium to other traditional media sectors with no signs that the short or long term challenges the industry faces are moderating.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-02-27 08:27:382006-02-27 08:27:38Radio Industry Outlook Hurts Clear Channel
Clear Channel (CCU) reported slightly worse than expected 4Q05 earnings with EPS and revenues just short of estimates. However, everyone was expecting a weak 4Q05 so that is not news. The real news is that the company confirmed 1Q06 pacings at 2.9%, better than feared following recent revelations by other operators about 1Q06 guidance. The shares are responding positively but would be trading up more if not for an unexpected increase in expense growth at the Radio division. In 4Q05, radio expenses rose 4% vs. expectations for flat growth. On the call, management explained that the expense increases were related to programming, talent, HD radio, and internet initiatives. Overall, radio expenses are now projected to rise 3-3.5% for the year with 1Q06 above that range. In 4Q05, revenues fell 6% which coupled with the 4% expenses growth led to a sharp margin contraction in radio from 42% to 37.8%. In 1Q06, revenue and expense growth should be about equal so margins should stabilize.
Overall, I think the earnings report and conference call will stabilize CCU shares and create the potential for a modest rebound in the shares. The company’s Less Is More initiative has been in place for a year and it appears that the financial penalty has ended. 2006 should be a decent year as the company has easy comparisons. However, it is not clear to me at what level revenue growth in radio can be sustained beyond 2006. Additionally, it is not clear if expense growth will moderate beyond 2006. Radio faces some tough challenges as advertising growth is inhibited by market share loss to the internet, growth in satellite radio, and continued growth in people listening to iPods. Given these challenges, I still don’t believe that CCU and other radio stocks can sustain a premium EBITDA valuation to other traditional media sectors. Granted, the low capital spending requirements create a favorable free cash flow profile. However, without sustained advertising growth of at least mid-single digits, I don’t think the street will pay up for radio stocks. Consequently, a relief rally in CCU shares is likely but will be limited.
One week ahead of its March 2nd 4Q05 earnings report, Central European Media Enterprises (CETV) announced an increase in its ownership of its operations in Romania. In a negotiated agreement with its partner, CETV is paying $27.2 million for an additional 5% stake in Pro TV. CETV will now own 90% of Pro TV. The remaining 10% ownership is subject to a previously negotiated put option whereby the Romanian partner can put at in 1% increments with price subject to an independent appraisal and a minimum floor of $1.45 million for each per cent of ownership.
CETV has been steadily increasing its ownership in all of its operations. I think this is an excellent expenditure of corporate resources as the prices have been good and increased ownership mitigates the risks of operating in emerging markets. CETV now controls a majority stake in all of its operating and license companies….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-02-23 07:58:512006-02-23 07:58:51Central European Media Enterprises Increases Stake in Romania
Based on news reports, it appears that Univision (UVN) wants to sell itself for $13 billion. Along with about $1.5 billion in debt that would work out to 18 times projected 2006 EBITDA of $800 million. It is a rich price, especially given that major media companies generally trade at 8-10 times EBITDA. UVN is a high growth asset that can’t be duplicated so a big premium is in order. I am certain there will be plenty of companies and private equity shops that will take a close look. By the way, those same things apply to Central European Media Enterprises (CETV). See the end of tis article for details
So far, speculation about buyers for UVN has centered on the usual suspects: Viacom, News Corporation, Time Warner, Disney, and CBS. Grupo Televisa, which owns 9% of UVN already and is its primary programming supplier under a long-term agreement thru 2017, has also received prominent mention. Private equity is clearly a potential buyer on its own or in partnership with a media company, although a high growth, high multiple asset doesn’t fit the private equity deal profile….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-02-16 14:24:542006-02-16 14:24:54The Univision Buyout and Central European Media Enterprises
One stock I’ve had my eye on as a possible long is Warner Music Group (WMG). The company reported yesterday and the shares fell slightly in response against a strong market.
My working thesis has been that the transition from physical to digital music sales would turn out more favorably than the Street expected. I am fairly comfortable with this idea, but to make money the stock requires that the negative sentiment toward the music industry put WMG shares at a valuation discount. At 10 times 2006 estimated EBITDA, I haven’t found the valuation cheap enough to attract me.
Nevertheless, I’ve tried to keep an eye on WMG as the company’s results could set up an opportunity in the shares. In the December quarter, the company’s 1Q06, the trend toward digital sales was quite strong. Digital sales were $69 million, 7% of total sales, up 176% against the year ago quarter of $25 million, and up 30% sequentially. With massive iPods sales in the December quarter, a strong quarter for digital sales was expected but I have to believe that growth in the current quarter will be exceptional as well given that many of those iPods were delivered at the end of the month on Christmas morning….
I continue to think that the big entertainment conglomerates which own movie studios could benefit from a positive shift in sentiment this year if the box office returns to growth. Disney, News Corporation, Time Warner, and Viacom would be the beneficiaries. Improved box office alone isn’t enough to rescue these stocks, but with sentiment quite negative and the stocks trading at the low end of historical valuation ranges, any improvement could provide relief for the stocks.
This past weekend held welcome news as the box office rose 4% vs. a year ago, the sixth time in the seven weekends it has been up. The box office is now up almost 7% this year. I am counting the final weekend of 2005 in the 2006 numbers but even excluding the New Year’s weekend that spanned 2005 and 2006, the box office is up 4%. December was also a good month, so quietly an improved trend may be emerging….
The Chicago Tribune took another shot at Sears Holdings (SHLD) this weekend with an article (free registration required) recapping a contractual dispute between the retailer and long-time Sears spokesperson Bob Vila. Noting that SHLD is in “demolition mode,” the article recaps CEO Eddie Lampert’s strategy to de-emphasize celebrity endorsers, focusing on the company’s attempt to terminate its contract with Vila. Of course, given the Tribune’s consistently negative reporting on SHLD over the past year, referring to Lampert the headline notes that “the moves may cost him.”
I noted in a piece in a January that much of the analysis from journalists and retailing experts was failing to distinguish between SHLD the stock and Sears and Kmart the retailers. I suppose this is understandable given their differing perspective from Wall Street analysts and portfolio managers. In the case of the Tribune, there is a focus on the job loss and decline of a long-time Chicago icon. Retailing experts are more concerned with the shopping experience and the long-term competitive positioning of the stores….
Lionsgate (LGF) shares are holding up much better than I expected following the company’s disappointing 3Q06 performance and reduction in FY06 guidance. Therefore, I am selling the shares I own for my clients and in my personal accounts. As I stated in my pre-conference call post, I want some distance as I re-analyze the situation and decide if I want to be involved in the LGF story.
The shares are holding up because management did a decent job of explaining its financials and justifying why $100 million in sustainable free cash flow is possible in 2007 and beyond. They provided a better explanation of their financial model and the shifts in balance sheet items that have a significant impact on free cash flow.
The company claims that if its 18 film releases each year can produce $300 million in domestic box office, the film division will produce $600 million in revenue as the films move through the home video and TV rights windows. Management assumes that the operating margin on this business is 19%. TV production can add $10-15 million in profits, direct-to-home DVDs can produce $5-10 million in profits, and the library can produce $40 million assuming a 20% margin on $200 million in sales. After deducting corporate overhead and net interest expense, there is $100 million leftover as free cash flow….
