Not much to say about Regal Entertainment’s third quarter earnings report. Given the well-chronicled strength in the box office, Regal produced very good results as anticipated. Occasionally, Regal and theatre operators are unable to translate box office strength to earnings. This was not the case in the third quarter for Regal.
The company is optimistic that earnings and box office strength will continue in the fourth quarter even thought the box office is performing poorly in October. The big releases this year are all in November and December. Last year’s holiday product generally performed poorly so comparisons are easy. For example, in 2006, weekly box office totals were in the $125-150 million range until early November. Blockbuster releases during holiday periods led to several weeks of over $200 million and one of over $300 million for the rest of the year. In other words, if comparisons are favorable for the holiday films the lagging box office so far in the fourth quarter can quickly turn to positive comparisons.
I looked over a few analyst models and the consensus estimates. Box office admissions revenue in the fourth quarter is forecast to be flat to down slightly and overall revenue growth, which includes concessions and in theatre advertising, is expected to be flat to up slightly. I think the bar is set appropriately low such that current box office weakness will not be an issue for the stock….
Apple reported another great with upside to Mac unit volumes and operating margins producing much better than expected EPS of $1.01. Numbers had been rising recently such that analysts were looking for mid to upper 80 cents. Even more impressive than the September quarter results was the fact that Apple provided December quarter guidance which slightly exceeded Wall Street forecasts. Heading into the report, the consensus estimate for the December quarter was $1.39. Apple guided to $1.42. If memory serves, this is only the second time in the last three years where Apple provided guidance at or above Wall Street forecasts. Given the company guides conservatively, the forecast implies another very strong quarter.
The shares now trade on 2008 and 2009 prospects. For 2008, the current consensus is $5.00 with many estimates in the $5.15-$5.20 range. For 2009, the forecast is for over $6.00. Even taking into account over $15 per share in cash on Apple’s balance sheet, the stock carries a high valuation with a P-E ratio of 36 times 2008 estimated earnings. Apple’s recent huge upside surprises probably mean that 2008 estimates are way too low. This is almost certainly the case if iPhone sales meet company targets of 10 million units in 2008. The iPhone is very profitable thanks to revenue sharing on monthly bills of cell phone subscribers. Thus, despite the momentum in Mac sales, the refreshed iPod lineup, and likely continued significant share gains in Macs, the iPhone has become more important as a driver of Apple shares now that they have moved up to new highs in the $180s…..
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-10-29 09:11:002007-10-29 09:11:00Another Blowout Quarter For Apple
The CETV analyst meeting that brought me to Bucharest, Romania, wrapped up just before the open of NY trading last Thursday. All is well. The company raised its 2007 guidance as I had expected in the preview of the meeting I posted earlier this week. Revenue guidance is now $795-820 million up from $764-798 million. EBITDA guidance is now $285-305 million up from $272-298 million.
As is often the case with CETV the composition of the results is somewhat different than I expected. The big upside in the new guidance is in Ukraine where third quarter political advertising and an uptick in ratings so far this fall now has EBITDA in a broad range of $22-35 million for the year. CETV has lost money in Ukraine year to date and had lowered guidance earlier this year when they were unsure of a turnaround. My spreadsheet had breakeven for 2007 heading into the meeting. Czech Republic, Romania, Slovenia, Croatia, and Slovakia all remain on track with my original expectations. I’d bet CETV reaches the upper of its guidance when all is said and done in 2007.
I also heard nothing to change my expectation for a couple of years of 20-30% growth off the 2007 base. If those numbers are achieved, plenty of upside remains.
Just for fun CETV showed a chart of its stock against GOOG indexed to just before GOOG’s IPO. Pull it up. It made me not feel so bad about missing GOOG, the greatest media/advertising play on our side of the Atlantic. At least I got the one over in Central Europe.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-10-26 13:43:582007-10-26 13:43:58Central European Media Enterprises Meeting Recap
NII Holdings, (NIHD) had a rough day yesterday. Following its 3Q earnings report and conference call before the open, the shares fell 20%. The loss was on top of a decline of 15% already this month. Heading into the report the shares had been under pressure due to worries about growth in Mexico, the company’s largest market. Fears about competition and the back-to-back-to-back hurricanes that hit in August had investors anticipating a miss. Mexico is critically important to NIHD shares because it accounts for 55% of revenue and 63% of EBITDA so far in 2007. Furthermore, the company just completed the build out of its network in Mexico and estimates for 2H07 and 2008 contain a big benefit from accelerated growth in revenue and subscribers and expanding margins.
NIHD reported fine headline numbers. Revenues of $853 million and EBITDA of $235 million both slightly beat estimates. Adjusted EPS of 61 cents beat consensus. Subscribers grew 38%, revenue grew 39%, EBITDA, grew 49%, and net income grew 58%.
So what the hell happened? First, net subscriber additions in Mexico were just 140,000, about 20,000 under consensus. Competition and weather were said to be equal culprits. Analysts delved deeply into the competition angle and are clearly worried about its intensity. Second, cost per gross subscriber addition in Brazil rose year-over-year. Brazil is NIHD’s second largest market and is on the same path as Mexico with a plan to build out the network over the next few years currently in place. Subscriber, revenue, and operating income results in Brazil were at least as expected but that did not contain worries that Brazil is also becoming more competitive.
While the stock got murdered, management was firmly upbeat about its prospects in Mexico and Brazil….
Comcast reported disappointing 3Q07 results. More importantly, the tone of management comments about a number of issues was quite cautious and does not support their words supporting sustained double digit growth in revenue, EBITDA, and free cash flow. This quarter will further collapse the multiple and the shares are lower. Given the likely path of company’s financial performance over the next three to five years the stock is way too cheap. However, management is not providing investors with the confidence necessary for them to pay for the growth. This situation will not be resolved in the short-term. I am re-evaluating the position. Essentially the decision is whether to show patience since upside of 30% exists in the shares. But we probably will be waiting several months at least for that to get started and Comcast is very widely owned so there could be more downside near-term as everyone throws in the towel.
Comcast reported cable segment revenue and EBITDA of $7.4 billion and $2.983 billion, respectively. These figures matched estimates as did margin expansion to 40.2%. Unfortunately, all the underlying metrics slightly missed targets. Comcast lost 65,000 basic subs vs. expectations of 30,000-40,000. Digital subs of 489,000 were about 15,000 light. High speed data adds of 450,000 were as much as 50,000 light. Of notable concern, telephony subs of 662,000 missed estimates of 700,000 to 725,000 and were down sequentially for the first time.
Management noted increased competition and marginal impacts from a slowing economy. They indicated they would respond by sharpening price points and introducing new product offerings beyond the focus on the triple play. Satellite and Telcos are using more aggressive pricing on one and two product offerings as well as tiering of high speed data. Comcast has not responded until now….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-10-25 12:28:342007-10-25 12:28:34More Bad News On Comcast
The column I posted last week providing an overview of Central European Media Enterprises already requires updating. In it I mention that CETV was likely to increase its 60% ownership of Studio 1+1, the #2 TV station in Ukraine, within the next year. As it turns out late last week, the company took a major step toward completing this important strategic goal.
After the close on Thursday, the company announced that Igor Kolomoisky, CETV’s newest Board member and one of the richest men in Ukraine, had secured a “valid right” to purchase an additional 21%. Upon Kolomoisky’s completion of the acquisition, an agreement is in place for CETV to purchase the stake for an amount not to exceed $140 million. Although there is no guarantee Kolomoisky’s right will turn into an acquired asset, based on the company’s past history of gaining incremental ownership in its operations, I expect the two-part transaction to be completed reasonably soon.
This announcement is very positive for CETV for two reasons. First, moving the stake up to 81%, along with September’s announcement that the company had secured control of the license, should allow CETV to exercise greater management control over 1+1. When ownership stakes turned into control in other countries, most recently Slovakia, revenue and EBITDA growth accelerated sharply….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-10-15 08:25:352007-10-15 08:25:35Central European Media Enterprises Gains Option To Increase Ownership In Ukraine
Since I’ll be spending most of next week in Bucharest, Romania at the annual analyst meeting for Central European Media Enterprises (CETV), I thought an overview of this long-time favorite was in order. CETV is currently the largest position in Northlake client accounts and my personal accounts.
CETV is the largest broadcaster in Central and Eastern Europe. The company owns leading TV stations in the Czech Republic, Romania, Slovenia, Slovakia, Ukraine, and Croatia. In 2007, I expect the Czech Republic to produce 36% of revenue, followed by Romania at 26%, Slovakia at 14%, Ukraine at 13%, Slovenia at 8%, and Croatia at 3%.
The investment case is simple: CETV is a pure play on the emerging consumer economies of Central and Eastern Europe. CETV is a US company using US GAAP accounting. Revenue, cash flow, and earnings are growing rapidly. Most importantly, management has consistently delivered on its promises to investors whether they are producing upside earnings surprises or meeting strategic goals for developing and enhancing the value of the company.
CETV is one of the fastest growing media companies in the world capitalizing on booming economies and advertising growth throughout Central and Eastern Europe. GDP in its markets is growing from mid-to-upper single digits, double or triple the rate of growth in Western Europe or the US. TV advertising growth in the region has been 20-30%, driven by high levels of foreign direct investment and rapidly emerging consumer economies. Management has recently been noting how advertising categories like consumer staples are still growth categories whereas in Western Europe these are considered mature. Further boosting the company’s growth profile is that the countries it operates in have per capita advertising spending at just 1/3rd the level of the entire Central European region and 1/6th the level of Eastern Europe. This gap is already narrowing.
CETV set a new all-time high on Thursday. The shares are up 45% this year and have tripled since early 2005. The market cap is $4.5 billion. Net debt at June 30th was $435 million. The company is free cash flow positive and produces significant earnings per share. Due to currency fluctuations, EPS are volatile and less useful as a valuation tool.
Like most media companies, total enterprise value to EBITDA is the most widely used valuation metric. The shares currently trade at 15.6 times my 2007 estimate of $284 million in broadcast EBITDA and 12.8 times my 2008 EBITDA estimate of $364 million. I ignore corporate overhead and new media investments but value Croatia at $0, a very conservative assumption.
My 2007 estimate is at the low end of management guidance. I think there is a decent chance that the company will raise the low end of its guidance range at next week’s analyst meeting due to favorable currency, strength in the Czech Republic, Slovakia, and Romania, and signs of stabilization in Ukraine. Despite the huge move in the shares, I think plenty of upside remains. My current target is $127 based on 15 times my 2008 estimate. Assuming the company sustains mid-teens EBITDA growth for a few years beyond 2008, something I believe is highly likely, the shares could double again within four years….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-10-11 11:21:222007-10-11 11:21:22An Overview of Central European Media Enterpises
While preparing my fourth quarter box office preview column last week, I came across some interesting and positive data concerning Disney. One of the worries for Disney this year has been the tough comparison at the movie studio due to the phenomenal success last year of Pirates of the Caribbean: Dead man’s Chest and Cars. This year, Disney released Pirates of the Caribbean: At World’s End and Ratatouille. Domestically, both of the 2007 releases significantly trailed their 2007 counterparts. Pirates 2007 matched Pirates 2006 overseas, leaving it $100 million short. This is material difference but given the vagaries of studio accounting and the fact that the two films were made at the same time, I would be shocked if Disney even mentioned any differences in the two films profitability on its upcoming quarterly conference call.
The Cars vs. Ratatouille comparison is trickier. Cars grossed $244 million in the US vs. $203 million for Ratatouille. Overseas, however, Ratatouille looks like it will easily exceed Cars, thanks especially to fantastic grosses in France. In fact, thorough the end of September, Ratatouille had grossed $223 million abroad, $6 million more than Cars. Furthermore, Ratatouille had yet to open in the United Kingdom, Germany, Italy, Greece, or Denmark. These countries produced a combined gross of $67 million for Cars, suggesting that the final worldwide tally for Ratatouille will exceed Cars….
With the market ramping and Apple and other tech stocks leading the way, I sold a portion of Apple in many client accounts on Friday as it crossed $160. I completed sales only in accounts where the position size was pushing towards 4%.
I have a detailed spreadsheet on Apple and no matter how much I tweak it, I have a hard time getting to a target price too much above $160 based on assumptions about sales, earnings, and cash flow that I am willing to use right now. Another way of saying this is that Apple has reached my stretch target based upon my current estimates. When that occurs, my portfolio management discipline is to trim the position and capture some profits. Clients who have been with Northlake since early to mid-2005 will find this strategy to be familiar. In fact, for clients where I was buying Apple in the $30 in early 2005 this marks the third or fourth time I have trimmed it. Sure, with the benefit of hindsight I regret trimming it at $48, $71, and $110. However, there are no sure things on Wall Street and it never hurts to pocket some of your gain.
One legitimate question is whey I wouldn’t sell the entire position at $160 if it has reached my stretch target….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2007-10-05 14:46:232007-10-05 14:46:23Trimming The Tree of Apple Profits
Yesterday NII Holdings (NIHD), one of Northlake’s long positions, fell by more than 5% on huge volume. At one point in the morning the shares were off over 10%. NIHD operates Nextel service in Mexico, Brazil, Argentina, Peru, and Chile. I heard of several reasons for the sharp sell-off. Most of the concern centers on Brazil, NIHD’s second largest market, accounting for a little less than 25% of EBITDA of 2Q07 EBITDA and an important high growth market for the company’s future. First, Brazil completed new spectrum auctions this week and indicated more auctions are coming. Once the spectrum is built out, Brazil will have four or five nationwide carriers raising fears of increased competition. Second, on Monday, Brazil’s telecom minister indicated that pricing of prepaid wireless services was way too high, above other emerging markets on an absolute basis and in relation to Brazilian post paid pricing. Independent of Brazil, I heard that Merrill cut numbers for NIHD slightly for 3Q but I was unable to confirm it.
I can see why there would be selling in NIHD on this stuff but the huge volume decline at the peak yesterday just shows how stupid Wall Street can be sometimes. Just a bunch of lemmings that see something down big and either sell without asking or short without asking. After all most of this news was out earlier this week and the spectrum auctions have been in the works for months…..
