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July 17, 2007

Good News: Central European Media Enterprises Acquires Minority Interests in Slovakia

Central European Media Enterprises (CETV), a name familiar to former Street Insight subscribers as my favorite long-term growth idea in media, announced some good news on Friday. CETV purchased the remaining 21% minority interest in Markiza, its TV station in Slovakia for $79 million. CETV now owns 100% of its Slovakian operations. The purchase price of $79 million equates to a station value of $400 million, a multiple of 13 times my probably conservative estimate of Markiza's 2007 EBITDA. With Markiza likely to grow by 45% this year and at least 20% next year this is a bargain price. Furthermore, I am highly confident that if CETV were to sell Markiza in an open auction the deal multiple would be at 16-20 times EBITDA. Consequently, I view this as a very good and accretive use of CETV's strong balance sheet.

Besides a 10% minority stake in Romania controlled by a put-call option, the only remaining country in which CETV does not own 100% of its assets is Ukraine where a complicated structure leaves the company with a 60% economic interest and a minority stake in the broadcast license. I am certain CETV is working very hard to purchase the other 40% and gain control of license now that a dispute over the ownership of the minority stake has been resolved. I think a deal is probably close but contingent on a more stable political environment in Ukraine that will hopefully emerge following the September parliamentary elections. Even without full ownership and control in Ukraine, CETV's emerging market risk has been reduced over the past few years as the minority stakes and licenses have been purchased....

I expect CETV to report a very strong second quarter led by the Czech Republic, Romania, and Slovakia. Ukraine may continue to lag as it did in the first quarter. With projected 2007 and 2008 EBITDA growth of 40% and 25%, I think CETV shares remain attractively valued 15 and 12 times 2007 and 2008 estimated EBITDA, respectively. I think an EBITDA multiple of 16-18 times is realistic given that is where Univision used to trade when it was enjoying growth of around 20%. Based on 2008 estimates, my current target for CETV is $125-130 leaving plenty of upside even after the shares have gained 40% this year and tripled since early 2005.

Posted by Steve Birenberg at July 17, 2007 10:57 AM in CETV