Research Samples

Central European Media Enterprises: Media Like the Old Days

CETV is a leading TV broadcaster in Central and Eastern Europe, serving 70 million viewers in Slovenia, Slovakia, Romania, and Ukraine. The company recently announced it is entering Croatia and the Czech Republic. Rapid GDP growth led by rising consumer expenditures is driving advertising growth at high rates in Central Europe. Many Central European countries have already or will be entering the EU.

As CEO Michael Garin likes to point out, TV markets in the region are more like those of the U.S. in the 1960s with a limited number of over-the-air broadcast channels and low multichannel penetration for cable or satellite. As a result of a legal victory vs. the Czech Republic, CETV is debt-free with about $200 million in cash. The company is using the balance strength for the acquistions in Croatia and the Czech Republic. These acquistions diversify the company, reducing the risk of poor performance at any single station.

I value the company using total enterprise value to station level of EBITDA. On this basis, the shares are less than eleven times 2005 estimates against a long-term growth rate of over 10-20%.

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MB Financial: Solid Growth and Reasonably Priced

MB Financial (MBFI:Nasdaq) is one of the largest independent, locally managed banks in Chicago. The company carries a market cap of about $1 billion and has total assets of $5 billion. The dividend was recently increased b to 54 cents annually providing a current yield of 1.4%. Insider ownership is significant.

MBFI has a strong track record of disciplined commercial lending and expense control complemented by a successful history of acquisitions. The company is a potential beneficiary of the J.P. Morgan (JPM: NYSE)-Bank One merger as dislocations related to bringing those companies together could loosen some traditional middle market relationships in the Chicago market.

First Call consensus for 2005 is $2.61, up 16%. MBFI completed one local acquisition in 2003 and another in 2004. Growth by acquisition is part of the strategy and another acquisition could come at any time. These acquisitions have been accretive due to cost cutting benefits of in-market deals and better selling of products and services to the newly acquired customers by the MBFI team.

Given the solid history on virtually every important measure and a double digit growth rate, the shares are reasonably valued at 14 times forward estimates and 2.3 times book value. MBFI doesn't appear to be a seller, but as one of the largest independent banks in the Chicago area with a focused commercial strategy, the company could be a nice addition for another bank wishing to enter or expand in the Chicago market.

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Motorola, Inc.
MOT is a little different from my other ideas as it is a widely followed mega cap stock. Usually, I look for stocks that aren't widely followed, generally with less than half a dozen active analysts. Sometimes I can find large cap stocks that fit that criteria but MOT certainly does not. The stock is widely followed with 32 analyst estimates on First Call for 2005 earnings.

Despite good results, new management, and clear evidence of a turnaround, the shares have lagged due to concerns about the health of the wireless handset and infrastructure markets, concerns about the IPO of the company's Freescale semiconductor division, the possibility that the company will lose business with Nextel, and the sustainability of recent margin improvements. In the case of MOT stock, I think these issues are widely understood and priced into the shares. MOT is a case where overanalysis has created an opportunity as too much time has been spent discussing the negatives.

The First Call mean estimate for 2005 is $1.01. This places the shares at a forward P-E's of 17. I find this quite reasonable given successive positive surprises in quarterly EPS and the possibility that 05/06 earnings estimates understate long-term earnings power.

Key to investor perception will be the company's ability to maintain its recent improvement in handset market shares. After years of stumbles, MOT has been shipping innovative products on time since last early 2004. The company has many new handset introductions planned for the balance of 2005. Investors have reason to be skeptical given past delays in product delivery and late introduction of key design features. If deliveries continue to meet the company's goals, investors in MOT shares may finally be rewarded for the turnaround in the company's fortunes. In summary, I expect the positive surprises to continue providing both a momentum and valuation catalyst for the shares.

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