« More Good News From Central European Media Enterprises | Main | SBS Broadcasting Reports Excellent 2004 Results and Provides Solid 2005 Outlook »

March 03, 2005

SBS Broadcasting Makes Another Acquistion and Speaks to The Street

SBS Broadcasting (SBTV) presented at a Bear Stearns conference on Tuesday after the close. Besides providing an overview, the company used the occasion to announce the acquisition of the #3 TV station/network in Romania and the top two radio stations (Central European Media Enterprises is #1 and #2 in TV). The acquisition price was €30.3 million euro allocated as €22.5 million for the radio stations, or 10 times their 2004 EBITDA of €2.25 million, and €7.8 million for the TV assets which lost €2 million in 2004 and are projected to breakeven in 2005. When added to a leading television station in Hungary and radio assets in Greece, the acquisition will bring Central European exposure at SBTV to over 20% against a long-term goal of 30%. The balance of SBTV's assets are in Scandinavia and the Benelux countries with the largest concentration in Scandinavia. This acquisition comes on the heels of a larger acquisition of the pay TV operations of CMore Canal Plus in Scandinavia. CMore brings subscriptions up to 30% of total revenue (the balance is advertising) against a long-term goal of 50%. I like both deals as each has good near-term growth potential and helps to diversify away from reliance on advertising. The acquisition prices appear reasonable as well...

SBTV reports on Tuesday, March 8, so comments on financial results and guidance were off limits at the Bear Stearns conference. CEO Harry Sloane did reiterate long-term goals of raising EBITDA margins from 15% in 2004 to 20% over 2 to 3 years on a base of €1 billion in revenue. The only other new info from the presentation was a comment that United Globalcom (UCOMA) has decided not to sell its 22% stake in SBTV for the time being. Sloane said he offered UCOMA current prices when the shares were recently in the low $40s.

For 4Q04, estimates call for revenue, EBITDA, and EPS of about €215 million, €46 million, and 84 cents, respectively. For 2005, pro forma EBITDA looks like €155 million, equaling of growth of 19%. EPS for 2005 should be around $1.95, although the euro has strengthened about 5% versus the exchange rate in my spreadsheet. At current prices the P-E is about 23. On an EBITDA basis, SBTV trades at 9-10 times 2005 estimates depending on how minority interests and operating loss carryforwards are accounted for.

The shares have been strong recently but I think upside remains to the low $50s on 2005 estimates. Further, I think those estimates may be a bit low and the growing presence in Central Europe and lesser reliance on advertising could lead to a higher multiple. Finally, this management team has delivered big-time in the last several years and maintains a strong a balance sheet that can further enhance shareholder value. To account for the intangible value I place on management, I add 10% or so to my target to prevent me from exiting too early or cutting off my buying too soon.

I'll post another update after the company reports its results next Tuesday.

Posted by Steve Birenberg at March 3, 2005 03:55 PM