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April 13, 2005

Lightening Up On SBS Broadcasting But Long-Term Thesis Intact

SBS Broadcasting (SBTV) shares have been acting very well recently, making a 52-week closing high on Monday. On Friday, Bear Stearns wrote about SBTV for the first time in many months, updating estimates and raising the price target to $51. Bear Stearns issued a 56-page report, so essentially this is new coverage. There is virtually no coverage of SBTV shares despite projected 2005 sales of over 900 million euros, so the new sponsorship is welcome and certainly helps the stock. Client holdings in SBTV were slightly reduced into Monday's strength. This was purely risk management as positions had grown large given the excellent performance of the shares. I remain bullish on SBTV shares...

My latest posting on SBTV covers all the key points in the Bear Stearns report. I do want to point out that my analysis suggested that EPS in 2005 could reach $2.59, while Bear Stearns is at $2.00 (both assuming 1.30 exchange rate). The difference is that I assumed about 5 million euros in higher operating income given what I thought was conservative guidance. I also added back 10 million euros in one-time new station start-up costs and ignored 6 million euros in one-time costs for the early call of the company's high cost debt this June.

In 2006, Bear Stearns is using an estimate of 2.20 euros, or $2.86 at the 1.30 exchange rate, up 40%. Although my spreadsheet does not go out to 2006, I'll be assuming a much lower growth rate than Bear Stearns off my higher pro forma 2005 base.

The Long-Term Thesis Remains Intact

I believe the shares can trade to the upper $50s over the balance of this year as visibility on 2006 EPS emerges. Given the company's historical growth rate, good record of accretive acquisitions, and the possibility that SBTV itself could be a target, a multiple of 20 times year ahead earnings in late 2005 seems fair.

Posted by Steve Birenberg at April 13, 2005 08:20 AM in SBTV