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March 08, 2006
Central European Media Enterprises: Final Thoughts on 4Q05
As a follow-up to my earnings coverage of Central European Media Enterprises (CETV), I wanted to mention that my spreadsheet now assumes 20% segment level EBITDA growth for 2006 to $237 million. EPS, using a very non-GAAP formula comes out at $2.20. For 2007, I think 15% EBITDA growth is easily achievable, with EPS potentially exceeding $3.00.
A key takeaway from the earnings call is increased confidence in the growth outlook for 2006 and 2007. Although formal 2006 guidance won’t be given until the 1Q06 earnings call in early May, management was specific and confident in its discussions of revenue, expense, and margin drivers. Consequently, I have firmed up my 2006 target, and, although it is early, I am willing got take a peak into 2007 for valuation purposes.
For 2006, I think that the EBITDA multiple will expand due to the high visibility of growth for all the factors within management's control. I think the stock can touch a 15 multiple which would put the target in the mid-$70s if credit is given to free cash flow and money-losing Croatia is valued at $0.
Looking into 2007, my target reaches the upper $80s assuming (1) the multiple holds, (2) EBITDA grows another 15%, (3) two years of free cash flow totaling at least $150 million is credited to the shares, and (4) Croatia remains valued at $0 despite reaching breakeven. By the way, I think Croatia is worth a lot more than $0 given that 2006 revenue could reach $25 million.
I have a full position in CETV but will look to add if it pulls back a bit. I am still a buyer for new clients. There is plenty of upside left despite the huge run since 2001.
Posted by Steve Birenberg at March 8, 2006 02:03 PM in CETV
What do you think caused today's large stock rise in cetv on large volume?What price would tempt you to sell stock again?
Posted by: mp at March 10, 2006 03:37 PMGood volume on today's move. No news or fresh research I could find. I just think more people are noticing the stock due to (1) the strond earnings, and (2) the big move up. When they take a look they see a stock that could easily trade into the mid $70s this year and upper $80s on 2007 estimates. Either target is plenty of upside to support a buy inthemid $60s. I added CETV to a couple of new client acocunts just yesterday. I MIGHT be a seller in the low to mid-$70s, just a little time to manage positions.
Posted by: Steve at March 10, 2006 03:42 PMcetv had another large run up today with its stock price well into the 70's.do you think
the stock is close to being fully valued at present?
also,ntli is consistently gaining ground.do you think it still is a buy?
I think both stocks should be held. Clearly after the big moves a short-term pullback is possible. However, I don;t think I am nimble enough to catch the timing and since I see both stocks are undervalued based on my late 2006 targets, I see no reason to try to be cute with sales.
I still think CETV can trade into the upper $80s or better if forecasts for 25% operating cash flow growth in 2006 and 20% in 2007 prove accurate. I beleive they will.
NTLI in the short-term may be governed more by interest of private equity in makng arumored bid. If that falls through, NTLI could pullback to $25-26 but I think the merger works well starting late this year and a price inthe $30s is easily justifiable assuming a successful merger.
Posted by: Steve at March 15, 2006 02:33 PMThe new offering of class a stocks of cetv at least suggests that cetv may need cash for furthur acquisitions in the near future. What purchases are likely now and what potential effects would they have on the company and the stock?
Posted by: mp at March 18, 2006 04:25 PMHi Mike:
I'll have a post up Monday discussing the equity deal. I think the most likely use of proceeds is to increase ownership and gain control of the license in Ukraine. That would be very positive. Management has hinted it could be in the cards. In terms of other deals, one analyst thinks Hungary. That could be OK given some synergy with Romania. You might also see some announcements on internet investments and TV production deals but both would be smaller. Overall, I have no issue with CETV doing a deal. It is a smart move to build balance sheet strength when you can, not when you have to.
Posted by: Steve at March 18, 2006 06:30 PM