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April 17, 2008
CE "TV" Does Radio
Central European Media Enterprises (CETV), recommended by Jim Cramer last Friday on Mad Money announced that it is acquiring two radio stations in Romania. Until this point, CETV has been 100% focused on TV other than developing an internet presence in each of its TV markets (Czech Republic, Slovakia, Slovenia, Ukraine, Romania, and Croatia).
The acquisition is small, just $20.6 million. CETV is acquiring Pro FM, a well established station with a 7% share of the 15-35 demographic, and Info Pro, a startup channel launched in 2004. Pro is nicely profitable with EBITDA of $2.2 million on revenues of $5.2 million in 2007, while Info produced a loss of $1.6 million last year. The stations are being purchased from a company controlled by CETV's COO, Arian Sarbu. I know Adrian and the other people at CETV and I have no worries about a conflict of interest.
The concept behind this acquisition is twofold. First, CETV recently began operating MTV Romania. The young demographics of Pro FM complement MTV Romania which should help build both businesses. Second, the broader idea of selling greater reach to the base of advertisers on CETV's other four leading Romanian TV channels is attractive. This second point is further reinforced in the press release when Sarbu states that CETV will "look to expand our multi-channel strategy though radio into other markets."
Major advertisers are spending aggressively to establish themselves in the rapidly developing consumer economies of Central and Eastern Europe (CEE). There is much less media fragmentation in CEE. As a result it should not be hard for CETV to increase advertising at any radio stations its owns just by making the buy easier for an advertiser with which it also does business.
I'd just assume CETV stay focused on TV and building its internet presence....
....However, radio is a small business in CEE so it seems unlikely that significant capital will be committed. At the margin, radio may help CETV sustain its 15-20% long-term growth rate for a few extra years. Big acquisitions remain much more likely in TV (Turkey?) or internet (Czech Republic?), however.
CETV plans to report 1Q08 and provide 2008 guidance on April 30th. I'll have a detailed preview at that time but I expect all the news to be good. The shares are very attractive at current prices for long-term investors. From a trading perspective, a good report and guidance should pop the shares smartly but in this market who knows what will happen.
Posted by Steve Birenberg at April 17, 2008 03:27 PM in CETV
1.DO YOU EXPECT GOOD EARNINGS BY MICC AND CETV THIS QUARTER?
2.DO YOU THINK THIS RALLY WILL LAST TO ANY SIGNIFICANT DEGREE OR DO YOU BELIEVE THIS IS ONLY A BRIEF BEAR MARKET RALLY?
3.MORE TO THE POINT,WOULD YOU SELL INTO ANY RALLIES OR DO YOU THINK IT IS TIME TO LET THE GOOD STOCKS RUN?
I expect very good results and 2008 guidance from CETV. I think MICC will be good but maybe not good enough. I have much less insight on MICC however.
I think this rally has limited upside from here. Maybe another 1-2%. I don't expect a new low unless the crisis in financial stocks returns. I expect it will be difficult to make money for the rest of the year.
Given my trading range outlook, I'd be a seller on this rally with trading oriented money or if my cash reserves were too low.
Posted by: Steve at April 21, 2008 11:09 AM