Expecting A Strong Quarter From Central European Media Enterprises

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Central European Media Enterprises (CETV) should report robust 4Q06 growth. I am forecasting revenues to rise 17% and EBITDA to grow 22%. Strong ratings in 2H06, a return to positive comparisons in the Czech Republic, improved execution in the Czech Republic, and favorable currency comparisons support the growth profile.
CETV shares are up about 15% this year despite getting shellacked for 8% in the last two days. CETV shares often trade up aggressively ahead of earnings and then sell off sharply following earnings regardless of the news. A 15% gain certainly qualifies a strong up move but maybe the recent sell-off will allow the shares to rally if the company reports a clean quarter and offer encouraging 2007 commentary as I suspect.
The biggest swing factor and focus of investor attention will be on TV Nova in the Czech Republic. Earlier this year, CETV reset the operating strategy and expectations for TV Nova. The goal was to improve ad pricing in the Czech Republic which was unchanged since 1999 despite great growth in the economy. Nova’s competitor initially decided to steal market share by not raising prices. In the new TV season that began last fall, the price increases held and Nova’s rating surged. I think it is possible that Nova will surprise significantly to the upside in 4Q relative to expectations included in the table below……

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Charter Communicaitons: Getting Better But Not Good Enough

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Charter Communications (CHTR) final 4Q06 results very closely matched the preliminary results reported on February 9th. Revenues rose 11.7% and EBITDA rose 10.3%. Revenues matched analyst expectations and EBITDA was a little ahead due to better than expected margins. A loss of 43,000 basic subs was an unexpected negative and much of the conference call Q&A was used to explaining the issue. CHTR also used the conference call to expand on its recent balance sheet refinancing activities and hint about future moves.
Overall, CHTR is moving in the right direction. New leadership has made a difference. There is now a plan and better explanation of what is happening now and might happen in the future. The company’s financial performance is starting to converge with the cable industry with double digit gains in revenue and EBITDA on the back of accelerating growth in VOIP Telephony and the triple play….

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NII Holdings Reports Solid Results and Offers Upbeat Guidance

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NII Holdings (NIHD) reported very good 4Q06 results that were inline to slightly ahead of analyst estimates and guidance. Headline numbers, country level results, and subscriber metrics were remarkably close to estimates across the board. This is a consistent pattern for NIHD which I think is a significant positive in the investment story given the perceived volatility of the emerging Latin American markets the company serves.
NIHD also issued 2007 guidance that was very close to current analyst estimates. Another year of mid-30% growth is in the cards. If there is any near-term issue coming out of the 4Q results it would be the forecast for only a 130 basis point increase in EBITDA margins in 2007. Some but not all analysts were looking for more significant margin expansion as the company reaches the end of a big investment cycle to expand its geographic reach in Mexico and Brazil. The margin forecast was accompanied by a higher than expected subscriber growth forecast of 1.2 million. Therefore, the incremental 100,000 subscribers compared to expectations may be the cause of the lesser margin expansion. New customers come on at very low or even negative margins in the initial year. I don’t want to make too big a deal out of this but the margin expansion story ultimately determines the level of free cash flow which will drive long-term shareholder value.
A very important point is that NIHD has a history of beating guidance….

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Cablevision Results Are Good News For The Cable Industry

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The most important takeaway from 4Q06 results from Cablevision (CVC) is that there is no negative read through for the cable industry at large. CVC has the deepest penetration of advanced services of any cable company and faces the most competition from Verizon’s fiber overbuild. Following recent concerns about the cable industry following higher than expected capital spending at Comcast (CMCSA/K), investors were anxious to hear what CVC had to say. CVC is essentially where Comcast will be in two or three years in terms of penetration and competition so the fact that CVC hit expectations, provided solid 2007 guidance, and did not increase capital spending expectations is favorable for sentiment toward the cable industry. I remain bullish on cable for 2007 with the caveat that the easy money has been made and risks are moderately higher….

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Regal Enterainment: Post National Cinemedia Update Looks Good

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Regal Entertainment (RGC) completed an SEC filing detailing the impact of the IPO of National Cinemedia (NCMI). The filing supports my bullish view of RGC which I believe offers a 15-20% total return opportunity over the balance of 2007. I expect to earn most of this return between now and the end of May as investors look ahead to the great lineup of blockbuster films this summer starting with the third films in the Spiderman, Pirates of the Caribbean, and Shrek franchises. Risk-reward is especially favorable for RGC as downside is supported by the $1.20 annual dividend which equates to a 5.5% current yield.
Northlake’s initial purchases of RGC were made about 11 months ago and have produced a total return of 13%. This is slightly under the 20% total return CAGR for RGC shares since they came public in 2002. I expect a return to the historical return profile to occur in 2007 as investors realize the poor box office performance in 2005 was cyclical, not secular.
In its filing, RGC stated that it will receive $445 million in after-tax proceeds as a result of the NCMI IPO. This works out to a little under $3 per share. Twice in the past, RGC has paid large special dividends to shareholders and I expect that to occur again….

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Thoughts on Sirius-XM Merger

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There was a lot less discussion of the Sirius Satellite (SIRI) – XM Satellite (XMSR) merger announcement on Real Money, Street Insight andother business news sources than I expected. I suppose that is because it was a long rumored and well analyzed potential deal and analysts feel that the odds of FCC and Department of Justice approval are less than 50%.
Yesterday, SIRI rose 6% while XMSR gained 10%. Both stocks closed near their lows for the day, however, pulling back by 3-5% from daily highs reached close to the open.
I see a couple of relevant investment themes from the SIRI-XMSR deal…..

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Interesting New Report on Apple

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Bear Stearns is out this morning with a detailed new report on Apple. Bear is not changing its buy rating or earnings estimates. Instead, the report lays out Apple’s growth profile focusing on four areas: Macs, iPods, Apple TV, and iPhone. The overall theme is that Apple is not a one product company but rather has multiple platforms for growth. This is new for Apple compared to its history. Bear Stearns goes on to outline the likely product development paths for each of the four platforms.
If you want to read the report, click “Continue Reading….” for a link to a PDF file.

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Year To Date Box Office Update: So Far So Good For Regal

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Following several sluggish weeks, the box office found some traction this weekend as several new releases exceeded expectations leading to an 18% gain vs. the holiday weekend a year ago. Based on a January 1st start to the year, the box office is presently down 1.5% vs. 2006. Regal Entertainment (RGC) started their quarter on 12/29/06. On this basis, year to date, the box office is up about 1% this year. The rest of the first quarter has easy comparisons as each week of 2006 was down vs. 2005. The release schedule also looks decent.
The current consensus revenue estimate for RGC for 1Q07 shows a decline of just under 1%. This is looking conservative as is RGC’s 2007 guidance calling for a 1-2% gain in revenue and EBITDA for all of 2007. RGC’s have pulled backed about 6% since the company reported 4Q06 results. With a good 1Q coming together and the excitement likely to occur surrounding May’s big releases of Spiderman, Pirates of Caribbean, and Shrek, I think a good trading opportunity exists. Additionally, an announcement of how RGC will use its share of the proceeds of from the National Cinemedia (NCMI) should come in the next few months. Past history suggests a sizable special dividend. Look for RGC shares to rally to a new high in May at which point I will likely exit this position. Keep in mind that RGC pays a 30 cent quarterly dividend equating to a 5.5% current yield, so you get paid to wait and have some downside protection….

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Good Results From Rogers Communications

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Rogers Communications (RG) reported very strong 4Q06 results. Wireless was the star performer with margin expansion exceeding analyst estimates. The Cable and Media divisions also performed well with modest beats on both revenues and EBITDA. EPS look to be way ahead of expectations at 28 cents vs. an estimate of 11 cents but RG trades off revenue and EBITDA and based solely on 4Q results it should trade higher.
This is also the time of the year when RG provides full year guidance. I find the guidance to be good but not great relative to expectations. I don’t think that analysts will have any major issues but since it is not a blowout the guidance could dampen the positive impact of the great 4Q numbers. Net-net, I think the quarter and guidance are a winner and RG will continue to trend higher after closing at an all-time high just prior to the earnings report….

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Rogers Communication 4Q06 Earnings Preview

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Rogers Communications (RG) preannounced solid subscriber results that should be supportive of a good quarter when the company reports full EPS after the close on Thursday. There aren’t many estimates on RG and there could be some confusion relating to U.S vs. Canadian dollar numbers but with those caveats look for EPS of 9-11 cents on an 11% increase in revenues to $2.4 billion. EBITDA should be near $680 million, rising 33% vs. 2005, a similar growth rate to 3Q06.
Wireless telephony will represent a little over half of revenue. RG already announced subscriber results that showed slightly below par net adds but lower than expected churn. These results are similar to what has been reported by other leading wireless players in Canada and could be indicative of an environment that is favorable for margins. Wireless number portability is coming soon to Canada and it appears that operators are looking to lock down quality customers and focus on ARPU at the expense of subscriber counts. I think this is a good strategy, especially considering that at around 57%, wireless penetration in Canada trails pretty much every other major industrialized market. Penetration is closely tracking these other markets but just a few years behind so giving up a few subs now should not prove costly. For the quarter, RG should see wireless service revenues rise around 17% with sharply margin expansion that has been evident all year continuing and driving EBITDA up by 55%. Other wireless issues to keep on eye on are trends in data and roaming. RG is the only GSM in Canada which gives the company a competitive advantage on roaming minutes and for obtaining the best selection of handsets.
2007 guidance for wireless will be an important part of the RG earnings report….

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