As a follow-up to my earnings coverage of Central European Media Enterprises (CETV), I wanted to mention that my spreadsheet now assumes 20% segment level EBITDA growth for 2006 to $237 million. EPS, using a very non-GAAP formula comes out at $2.20. For 2007, I think 15% EBITDA growth is easily achievable, with EPS potentially exceeding $3.00.
A key takeaway from the earnings call is increased confidence in the growth outlook for 2006 and 2007. Although formal 2006 guidance won’t be given until the 1Q06 earnings call in early May, management was specific and confident in its discussions of revenue, expense, and margin drivers. Consequently, I have firmed up my 2006 target, and, although it is early, I am willing got take a peak into 2007 for valuation purposes.
For 2006, I think that the EBITDA multiple will expand due to the high visibility of growth for all the factors within management’s control. I think the stock can touch a 15 multiple which would put the target in the mid-$70s if credit is given to free cash flow and money-losing Croatia is valued at $0.
Looking into 2007, my target reaches the upper $80s assuming (1) the multiple holds, (2) EBITDA grows another 15%, (3) two years of free cash flow totaling at least $150 million is credited to the shares, and (4) Croatia remains valued at $0 despite reaching breakeven. By the way, I think Croatia is worth a lot more than $0 given that 2006 revenue could reach $25 million.
I have a full position in CETV but will look to add if it pulls back a bit. I am still a buyer for new clients. There is plenty of upside left despite the huge run since 2001.