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April 30, 2008
Great Quarter and Guidance for CETV
Central European Media Enterprises (CETV) reported outstanding 1Q08 results and simultaneously issued 2008 guidance well above most analyst estimates. The shares responded very favorably, rising over 9%. I think the stock can easily reach $130 this year and based on longer term projections I think a double remains a distinct possibility.
In 1Q, CETV reported revenues of $223 million and EBITDA of $75 million. Revenues grew 51% and EBITDA grew an astounding 86%. Management stated that currency may have added 20% to the growth rates (100% of CETV's operations are in Central Europe). By country, Organic revenue growth ranged from 20-40% and organic EBITDA growth ranged from 25-50%. CETV may have also received further benefit from an ad sales strategy that is attempting to smooth seasonality. In Europe 1Q and 3Q are seasonally weak. Some sales may have been pulled forward from 2Q but I suspect it was not particularly significant. The bottom line is that core organic growth at CETV is superb due to healthy markets and superior operating management.
Results beat my expectations pretty much across the board. The Czech Republic, CETV's largest market, had the biggest upside surprise with 66% revenue growth and 7% EBITDA growth. Romania, CETV's #2 market, also had a material upside surprise. The other big positive was in Croatia which enjoyed 60% revenue growth as CETV's station moved to #1 in ratings.
CETV's 2008 guidance is for $1.1 billion in revenue and $440 million in segment broadcast EBITDA. CETV also guided to a $15 million EBITDA loss in its burgeoning internet efforts. This guidance was at the very high end of published estimates and well above consensus....
....I've update my spreadsheet which now reasonable closely matches guidance. However, I had to dial back country-by-county growth assumptions to come close to guidance. In other words, I think the guidance is conservative. 2Q results will provide a better answer particularly as it relates the company's strategy of smoothing revenue.
Based upon guidance I think the shares have a clear path to $130 which would be 13 times my 2008 broadcast segment EBITDA estimate plus an adjustment for the obvious value that exists in Croatia which is going to produce a small loss in 2008. The target implies just a $260 million value for Ukraine (13 times my 2008 estimate) despite the fact that the recent acquisition of the control stake implied a value between $750 million and $1 billion. CETV will provide a full update on Ukraine following closing of the acquisition before the end of June.
Not be greedy but assuming 20% EBITDA growth in 2009 and further growth in the value of Croatia, I can see the shares reaching $160. My stretch target based on early management thoughts on Ukraine's 2010 potential is $200. These targets are based on growth only and assume no multiple expansion. For what it's worth, Univision used to trade at 16-18 times when it was in its high growth phase.
Posted by Steve Birenberg at April 30, 2008 03:06 PM in CETV
1.cetv and micc both had very outstanding quarterly reports which drove stock price significantly from their low baselines.however,both stocks appeared to have hit ceilings well below their true worth.even in this bad market,both stocks are probably worth $130 or so.in a good market ,both stocks should reach $175 to 200
2.nevertheless,the market yesterday rose abruptly to about 1410 and then sold off with the traders as the market hit technical resistance.
3.this market is incredibly frustrating.for the second time since 2000,we are in a market where fundamentals do not seem to matter.technical markers,emotion and trading seem to rule the day.this is not the kind of market most average people i.e.amateur investors can function well in.
the hope is that the market will start turning around about election time and that we will not be again be in a prolonged downturn.
4.in the meantime cetv and micc appear to be good core positions.
Sorry for the slow response. The mronign of the first trading day of the month is unusually busy for me.
1. Show some patience. Both stocks are up nicely again today and both are now doing at least as well as the market this year. Very few stocks will trade at their fundamental value in a market that is in a bearish trend and nervous. Earnings have enhanced the value of both companies and increased investor confidence. Buy more of either if the market gets clobbered again.
2. I would not read much into yesterday's post-Fed market. Lots of futures related selling that was independent and preordained. I still think the top of the trading range will prove a difficult obstacle but I also think we have seen the lows for the year. May is usually a tough month and I think a pullback is in order.
3. I think a new bull market will start in late fall just prior to the election. The economy should look better for 2009 and that plus low interest rates will be the catalyst.
4. See #1 above.
Posted by: Steve at May 1, 2008 11:30 AM