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March 08, 2005

SBS Broadcasting Reports Excellent 2004 Results and Provides Solid 2005 Outlook

SBS Broadcasting (SBTV) reported very solid 4Q04 and 2004 results after the close on Monday. Monday's conference call confirmed the solid numbers apparent in the press release and laid out an encouraging outlook for 2005 that is conservative in my opinion. For 4Q04, SBTV reported €211.2 million in revenue, up 7.8%, and €47.8 million in EBITDA, up 31.7%. For the year, SBTV had revenue of €678.3 million, up 16.6%, and EBITDA of €104.3, up 42.8%. Fully diluted EPS for 2004 was €1.49 vs. €1.04 in 2003. Based on the 2004 results, strong projected growth in 2005, a high likelihood of double digit annual growth in 2005 though 2007, and a reasonable valuation, SBTV shares should move at least another 20% higher in the next twelve months....

SBTV's results are dominated by its television operations in the Netherlands, Hungary, Sweden, Belgium, Norway, Denmark, and Romania, in decreasing order of revenue contribution. Television represented 82% of 2004 revenue with the balance split fairly evenly between radio and magazines.

SBTV has been quite active in acquisitions in the past month paying €270 million for Scandinavian pay TV company CMore Canal Plus and €30 million to raise its ownership in Prima TV in Romania to 86% and acquire two leading radio stations in Romania. Besides these investments, SBTV also said on its conference call that it would invest another €10-11 million in its startup TV networks in the Netherlands, Belgium, and Hungary.

After adjusting for the start-up costs and partial years for the new acquisitions, it appears that underlying EBITDA growth of legacy operations will be over 10% in 2005 driven by 5-6% growth in television advertising. Including the acquisitions and adding back the start-up costs, EBITDA should grow 40% in 2005. EPS should rise from €1.49 to €1.87 or $2.59 using a 1.30 exchange rate.

Even better, the acquisitions of CMore and Romania should sustain very good growth rates beyond 2005 as subscribers and margins expand at CMore, and as Prima rides a projected 12% CAGR for Romania's television advertising market while the country awaits its 2007 entrance into the European Union. When combined with mid-single digit growth in the mature Northern European markets and the elimination of start-up losses on the new networks, SBTV looks set to sustain double-digit EBTIDA and EPS growth over the next three years.

Best of all, investors pay a very reasonable price for this growth at 8.5 times 2005 estimated EBITDA and 18 times earnings. Those multiples are computed using the numbers in my spreadsheet which call for EBITDA of €145 million, €7 million ahead of management's conservative guidance.

I see no reason the shares can't trade in line with the valuation accorded slower growing U.S. television broadcasters. At 10 times 2005 estimated EBITDA and/or 22 times 2005 estimated EPS, SBTV should reach $57 later this year. Against Tuesday's close of $46.65, that leaves upside of 22%, even after the shares have risen 16% already in 2005.

Posted by Steve Birenberg at March 8, 2005 03:22 PM in SBTV