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March 04, 2008
CETV Issuing Convertible Bonds
CETV announced a $425 million convertible offering after the close yesterday with a $50 million green shoe. Proceeds will be used to acquire another 30% of its operations in Ukraine, bringing control and 90% ownership. Given its strong balance sheet, CETV didn't need to raise this money to fund the $210 million Ukraine purchase so it is probably fair to assume that they are getting close on another acquisition. Over the weekend, there was an article in the Financial Times indicating that they were in position to partner with new local owner of Turkey's leading commercial TV station group. In addition on its last conference call, management made it pretty clear that they would be purchasing additional operations in Ukraine. Both of these deals could be dilutive to current valuation assuming that the acquired assets are in start-up phase or under earning. However, Ukraine and Turkey are huge markets in terms of population that are enjoying rapid GDP growth and advertising growth in the range of 20-40%. In other words, CETV would be buying the next leg in its growth profile beyond the current leg that has been driven by the Czech Republic, Romania, Slovakia, Slovenia, and initial forays into Ukraine.
More assets in Ukraine, a new market in Turkey, and the pending turn to profitability in Croatia (70% revenue growth but an operating loss in 2007), would provide enough upside to sustain 20-30% growth for another five to seven years. In the meantime, Romania remains a 20% growth market, CETV 's second largest operation, the Czech Republic, has another year of 15% local currency growth, and Slovakia has 15% local currency revenue growth but huge upside in margins. CETV EBITDA is up 85% since 2004. Well financed acquisitions in high growth markets offer a great chance to extend the run. That makes the sharp drop on the convert deal an opportunity for new long positions in CETV.
Posted by Steve Birenberg at March 4, 2008 09:58 AM in CETV
1.AS BEST AS I CAN DISCERN CETV EXTENDED ITS OFFERING TO TODAY AND INCREASED THE TOTAL OF BONDS SOLD TO $400MILLIONS.DOES THIS CHANGECTHE PARADIGM IN ANYWAY?
2.WE SUCCESSFULLY RETESTED THE LOWS YESTERDAY AT 1310 IN THE S/P AND SEEMED TO BOUNCE UP. DO YOU THINK WE HAVE FORMED A BOTTOM OR HAVE WE JUST STARTED ANOTHER DOWNLEG TO A NEW LOW?
3.MICC DID VERY WELL YESTERDAY IN MAINTAINING ITS STOCK PRICE IN THE MIDST OF THE LARGE DOWNTURN.WHY IS THE STOCK DOING SO WELL IN THE SHORT TERM?
1. The CETV deal is priced and sold. The only question is whether Lehman and JP Morgan sold all the bonds to clients. Once that process is doesn't he shares should bounce back from the technical selling yesterday. No change to the paradigm althought the $105 strike price makes this a more expensive financing than I would have preferred.
2. Not sure if I would call yesterday a retest but it should take the pressure off for a day or two. I think a real retest with the S&P 500 testing 1270 is still ahead.
3. MICC is doing well because it has a low multiple of cash flow and the operating momentum is strong. Also, unlike CETV, it has borkers and Cramer willing to pump it when it drops.
Posted by: Steve at March 5, 2008 07:59 AM1.CETV APPARENTLY EXTENDED ITS OFFERING TO TODAY.WHEN WILL IT END AND WHEN WILL IT BE LIKELY THAT THE STOCK WILL TREND BACK TO ITS BASELINE?
2.I HAD SOME TROUBLE WITH YOUR CELL PHONE NUMBER.
DID YOU CHANGE IT OR IS THERE SOME MALFUCTION WITH THE LINE ITSELF?
1. The CETV convert was priced last night. Here is the press release. Lehman and JPM, the underwriters may still own some bonds they want to sell to money managers but the deal is done. The fact that volume has dried up since the opening hours also suggests the deal is getting well placed. The shares should rally soon if the market holds.
2. Not sure what happened with the phone. I've received several calls today.
Posted by: Steve at March 5, 2008 01:50 PMcetv just lost an additional $3 on no bad news despite the offering being over.what does this unexpected,furthur drop in the stock portend for its future? is there more short selling going on?
Posted by: mp at March 6, 2008 02:05 PMThe Dow, S&P , NASDAQ and Russell are 2% or more. CETV has little chance to not go down sharply in this bad of a market. The volume on CETV is back to normal which tells you it is not the deal that is impacting it today. IT is a high beta stock and odes badly when investors want to avoid risk.
Posted by: Steve at March 6, 2008 02:21 PMth s/p ended at 1305,a new low.this suggests another down leg is likely.
Posted by: mp at March 6, 2008 02:59 PMIf you count 1305 to 1270 as a leg down I agree. I still see the trading range as 1270 to 1390 within a down trend.
Posted by: Steve at March 6, 2008 03:13 PMWHAT IS GOING ON WITH THE MARKET IN GENERAL AND CETV IN PARTICULAR/ CETV IS DOWN TO $75,$8 BELOW THE PRICE AT OFFERING AND $50 BELOW THE 52 WEEK HIGH.THE MARKET SEEMS TO BE FALLING APART TOTALLY.
I DON'T KNOW WHAT THE VIX IS .IS THERE ANY SIGN OF CAPITULATION YET? ALL THE GOOD COMPANIES AND EVEN GOLD AND OIL ARE HEADING IN UNISON TO THE FLOOR.
I don't have any good answers. CETV has been caught in bad set of circumstances. The stock would probably be about $85 if they had not done the offering. The convert timing was terrible exacerbated by the complicated call option attached. Right now, investors think anything complicated is risky. I still maintain the shares will rally huge once things settle down. When that happens I don't know. IT picked up nicely into the close today so maybe the worst is passed.
AS for the markets, they always go further up or down than you think when the trend gets real strong. Sentiment is terrible. All the news is bad. But reality is probably not this bad. We need stability first so everyone can take a deep breath. I think that 1293 on the S&P will look like a pretty damn good place to be long in a year or 18 months.
Posted by: Steve at March 7, 2008 03:02 PM