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May 05, 2006

Central European Media Enterprises: Shares Respond Well To First Quarter Earnings

Here are the comments I wrote yesterday as soon as I got off the CETV conference call. I'll post a more complete analysis Monday morning after I finish updating my spreadsheet and checkng withmy contacts:

I just got off the Central European Media (CETV) conference call. The shares are trading up, recouping some of the losses in the last month. The quarter more or less met my expectations, although the contributions on a country basis varied widely from my model. As I adjust my spreadsheet, I find that my 2006 numbers are coming down due to an investment year in the Czech Republic, Slovakia, and Croatia. Next year still looks the same as management guidance for the Czech market was optimistic and very specific. Management even provided detailed guidance for this market in 2008. I am assuming that guidance this far in advance would not have been provided without an unusually high degree of confidence.

Romania and Ukraine remain the growth drivers. After a 2006 setback, the Czech Republic will be a larger growth contributor over the 2007 to 2008 time frame than I previously expected. Trading higher multiyear growth for weaker performance in 2006 is an acceptable strategy, in my opinion, however, requires a greater reliance on 2007 forecasts to provide upside in the stock. Having been with this management team since 2001, I have full confidence that 2006 through 2008 guidance will be met. Therefore, I am willing to look out into 2007, where I think the shares could move well into the $80s.

The few analysts who follow CETV might take a different view as their models require a lot of tinkering. I suspect a couple of analysts may not be willing to model the 2007 guidance and will take a more cautious view. If any such commentary does come from analysts and push the shares lower, I'd increase positions in Northlake accounts. I am a willing buyer at current levels although Northlake's position is presently full.

Posted by Steve Birenberg at May 5, 2006 10:06 AM in CETV