Unvision: Good Quarter Supports Buyout Valuation

Bidders for Univision (UVN) won’t have to adjust their models very much based upon the company's 1Q06 earnings report. Revenues were about $10 million light, but margins were better than expected so EBITDA slightly exceeded estimates. EPS also beat by a couple of pennies. Specifically, revenue was $49 million against consensus of $460 million, EBITDA came in at $135 million vs. consensus of $131 million, and EPS were 17 cents against estimates of 15 cents.

Television revenues fell just short of estimates but the bulk of the revenue shortfall occurred at the radio and music divisions. The small internet operation exceeded estimates and operated profitably. TV ratings were good and the press release bragged about the fact that on half of all prime time evenings, UVN's networks beat ABC, CBS, FOX, and NBC in adults 18-34. Radio fell short due to weak results at stations in Miami, San Francisco, Houston, and San Diego. Excluding these markets, radio revenues grew 8%. Formats in these markets have been adjusted and ratings have responded. Consequently, management expects renewed growth in 2H06. Music faced an unusually tough comparison. Comments on the call were limited so I don’t have a good feel for how that will play out the rest of 2006.....

Management provided guidance for 2Q06 that closely tracks analyst estimates. World Cup soccer hits in 2Q which distorts the numbers and creates some variance in analyst estimates at the operating level. About 80% of the World Cup impact occurs in 2Q with the balance hitting in 3Q. For 2Q, management said that revenues would rise in the mid to upper 20% range, EBITDA would grow in the mid 20% area, and EPS would be 31-32 cents. Excluding the World Cup, revenues will grow in the low double digits and EBITDA in the mid 20s, which shows that the tournament is not a big profit generator.

UVN shares won’t respond much to the quarter and guidance. Everything rides on the outcome of the bidding for the company. I think at least one strong bid will emerge due to the uniqueness of UVN's US-based growth assets. A deal near the asking price of $40 seems in the cards.