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May 23, 2005

SBS Broadcasting Starts 2005 In Fine Form

SBS Broadcasting(SBTV) reported excellent first quarter earnings on Monday. Driven by better than expected organic revenue growth in the company's television operations, EBITDA exceeded estimates coming in at 8.1 million euros. Management affirmed prior guidance for 138 million euros EBITDA for 2005. On the call analysts asked many questions that tried to get management to admit guidance was low. Management did not bite despite noting that the strength in TV is continuing, as they believe it is still too early in the year to raise guidance given limited visibility. I continue to think guidance is low and stick by the 145 million euro figure in my spreadsheet. I added to holdings in SBTV on Monday for new clients or to build positions for those who already owned SBTV.....

....Strength in the quarter on revenues was virtually across the board. Organic growth in TV was 13% against 6-7% full year guidance. Northern and Central Europe led the charge with Norway, Sweden, and Denmark all growing ahead of their markets. Holland, which is 33% of the television segment, grew a better than expected 5%, as that market showed signs of recovery. Hungary grew in line with its market starting from a market share in the upper 30s. I find the strength in Northern Europe and Netherlands surprising given all the negative commentary I read about Western European economies and ad markets. Management was confident on the call when asked if this strength was likely to continue. The only risk they saw was to Holland because of a new station launch that could prove disruptive.

Radio and Print, which are each one-tenth the size of TV, also had good quarters. Radio has been a trouble spot so renewed growth and better margins in this segment are a welcome development. SBTV's newly acquired radio stations in Romania were EBITDA positive and are tracking on plan.

Commentary about the newly acquired CMore PayTV operation in Scandinavia was very encouraging. Management said the integration was ahead of schedule and affirmed its CMore guidance for 2005. Cost savings are on target and optimism for a strong fourth quarter for subscriber growth and ad sales was noted . Enthusiasm for this acquisition came though very clearly on the call. CMore is diversifying SBTV away from its reliance on advertising markets. Non-advertising revenue grew to 32% in the first quarter versus 24% a year ago. CMore also makes SBTV the dominant TV operator in Scandinavia bringing economies of scale in programming purchases and expense control and providing a superior platform for advertisers.

The company's balance sheet is in the process of being restructured to pay for the recent acquisitions and refinance $100 million in 12% debt that has been called. The company is using a bit more cash and a little less bank lines than I thought they might but the net debt position for year end looks right on track.

SBTV shares look very attractive. The company has made smart acquisitions and now appears to be gaining market share in ad markets showing decent growth. Management is shareholder friendly and the balance sheet is strong. Liberty Media (L) controlled United GlobalCom (UCOMA) owns 22% of SBTV and although both sides say no deals are imminent, I like this holding as a possible catalyst one day given

Posted by Steve Birenberg at May 23, 2005 02:59 PM in SBTV