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July 27, 2005

SBS Broadcasting Reports on 7/28

SBS Broadcasting (SBTV) reports after the close tomorrow followed by a Friday morning conference call. I remain long SBTV and expect another strong earnings report. The shares look very attractive and are my #1 pick in media at the moment.

SBTV's 1Q05 earnings report was very strong. However, despite repeated leading questions from analysts the company refused to raise its full year guidance. I except the 2Q05 results to firmly indicate guidance is too low. Whether management continues to play it conservative is impossible to know. Current guidance calls for 138 million euro in EBITDA while my spreadsheet and 1Q05 results indicate mid-140s is more likely....

...2Q results should be strong with strength in TV in Sweden, Belgium, and Hungary, while Denmark should show solid growth. The Netherlands is the company's largest market and showed surprising strength in 1Q05. A newly launched channel by a competitor could slow growth in the Netherlands but 1Q trends of mid-single digit growth should generally hold. TV represents over 80% of the company's revenues so the organic growth rate across the segment will be key to watch. The stock has minimal coverage (which is one reason I am so bullish) but the analysts will be looking for organic growth in TV of about 10% in 2Q.

The other key items of focus in the report will be progress at the newly acquired CMore, any balance sheet updates, and currency concerns. This is the first full quarter of ownership for CMore. Management has been very optimistic about this acquisition particularly when the seasonally strong 4Q arrives. With a full quarter under its belt, commentary about CMore will be critical. SBTV also has a very strong balance sheet and generates free cash flow. Using more leverage to boost shareholder value via acquisitions or share buybacks also deserves comment from management. Finally, the drop in the Euro vs. the dollar will pressure dollar based growth rates. I think most investors in SBTV analyze the company in Euros but this is also an area that deserves exploration.

Another strong quarter will get investors to look ahead to 2006 where SBTV trades at under 10 times EBITDA and around 18 times EPS. Given double digit growth rates, free cash flow, a shareholder oriented management, and asset value that might attract suitors, SBTV shares look cheap to me.

Posted by Steve Birenberg at July 27, 2005 12:08 PM in SBTV