Erste Group Research Erste Sector Media | MEDIA | 25 September 2013
Erste Sector Media Market is gaining confidence; mild recovery is coming. In current environment, we prefer companies with strong balance sheets and high cash-generation ability.
The ad market slowed significantly in 2011-13, when advertisers cut back their budgets as the global macroeconomic situation plunged. The European economy has already bottomed out and we have seen the first signs of ad market stabilization. The ad market is normalizing and is continuously gaining confidence, after a period of high nervousness and short-term purchasing. The move from complete uncertainty and nervousness is changing into regular operating mode, a more confident approach leading to committing for a longer time than just the next few weeks. For the second half of 2013, we believe that the situation on the advertising market will continue to improve a little bit, while the real recovery across the CEE region should come in 2014-15.
Vaclav Kminek
[email protected]
In the current environment, we continue to prefer companies with a strong balance sheet and high cash-generation ability. We maintain our positive stance towards Cyfrowy Polsat and Cinema City. Cyfrowy is in good shape to significantly deleverage itself, while Cinema City has a promising expansion strategy, in our view. Agora, with its healthy balance sheet, is worth a look, although the share price has gone up too far, too fast. We remain negative on TVN, which saw its stock price rocket recently. TVN is a pure bet on the development of the Polish TV ad market and is more vulnerable to negative shocks, while it is also traded with a huge premium to its peers, similarly to CME. Contents Executive summary Peer comparisson Market overview
2 4 6
Company Reports Agora Cinema City CME Cyfrowy Polsat TVN
11 19 26 34 40
Contacts Disclosures
46 47
Summary of recommendation and target prices: Company
Target price/ share
Recommendation
Cyfrowy Polsat
PLN 24.0
Accumulate
Cinema City
PLN 34.0
Accumulate
CME
USD
5.0
Reduce
TVN
PLN 13.0
Reduce
Agora
PLN
Reduce
9.0
Erste Group Research – Sector Report All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
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Erste Group Research – Erste Sector Media – 25 September 2013
Executive summary We prefer companies with strong balance sheet and high cash flow ability
Media is one of the most pro-cyclical sectors. In the current environment, we prefer companies with a strong balance sheet and high cash-generation ability. The safe play for a long position seems to be Cinema City, with a promising expansion strategy, and Cyfrowy, which is in good shape to continue deleveraging itself. Agora, with its healthy balance sheet, is worth looking at. However, the share price has gone up too far, too fast. CME is a highly risky leveraged bet on the CEE region with a strong premium to its peers.
Weak ad markets in 2012-13
The ad market slowed significantly in 2012-13, as advertisers cut back their budgets as the global macroeconomic situation plunged. The situation on the European periphery has caused the known market volatility and weakness. Their ad markets have fallen even more sharply than their economies, as local advertisers cut back to reduce losses and preserve cash, and multinationals withdrew budgets to redeploy in more economically healthy regions. Ad markets in Central Europe are performing more like countries such as France or Germany than the much-faster growing markets of Eastern Europe such as Russia. Many of these Central European markets have strong trading links with Western Europe. As a consequence, their ad markets follow these trends. One exception is the situation in the Czech Republic (and partly in Slovakia), where the pricing policy of the major player (CME) had a strongly negative impact on the total ad market’s performance there in 1H13 (double-digit TV ad market decline).
Market is gaining confidence; recovery is coming, hopefully
We have already seen the first signs of stabilization in the middle of 2013; the market is normalizing after a period of high nervousness and short-term purchasing. It is obvious that the market is continuously gaining confidence and returning to professional normalized planning cycles. The move from complete uncertainty and nervousness is changing into regular operating mode, a more confident approach leading to committing for a longer time than just the next couple weeks. The real recovery across the CEE region should come in 2014-15, while mild improvement will most likely be visible already in late 2H13 (there are still declines on the majority of CEE markets, but at a slower pace y/y).
Cinema City and Cyfrowy Polsat are our top picks
We assign Cyfrowy Polsat an Accumulate recommendation, as it is well positioned to significantly deleverage itself - similarly to Cinema City, which seems to have a promising expansion strategy in the pipeline, as well as a valuation gap to its peers. Cost cutting measures in the cases of Agora and TVN have more than offset the weakness of the ad market, but the market seems to be more bullish than corresponds with reality. We have Reduce calls on these stocks. CME issued new shares and significantly improved its balance sheet, while the market reacted positively to the former CEO’s exit. As a consequence, its valuation premium to its peers has increased significantly, earning the company a Reduce recommendation. We maintain our positive stance on Cyfrowy, despite the fact that the shares have added more than 45% since our last report. There have been no significant changes in our model, while we only fine-tuned the 2013-15 financials to incorporate the Polskie Media (TV4+TV6) acquisition. As a consequence, we have increased our target price to PLN 24.0, while lowering our recommendation from Buy to Accumulate.
Erste Group Research – Sector Report
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Erste Group Research – Erste Sector Media – 25 September 2013
Cinema City, the largest theater operator in CEE, operating 974 screens in 100 locations, has an ambitious roll-out plan for an additional 340 screens in 31 locations (63% in Romania). We expect 189 screens (+19.5%) to be added during 2013-16, of which 53% are to be opened in Romania, 23% in Israel, 16% in Bulgaria and 8% in Poland. We have increased our 12M target price from PLN 32.5 to PLN 34.0, based on our revised DCF model, while we have maintained our recommendation at Accumulate. Agora has a strong balance sheet, which is its greatest advantage over its peers. Moreover, the most valuable fixed asset - Agora’s headquarters in Warsaw (worth approx. PLN 350-400mn) is a strong support for the share price. On the other hand, Agora is mainly exposed to the ‘least’ attractive advertising segment, newspapers, and will underperform its peers in Poland. Agora stock has added more than 30% since our last report. We have increased our 12M target price from PLN 8.5 to PLN 9.0, while downgrading our recommendation from Accumulate to Reduce. We generally like Agora and simply believe that the current share price went up too far, too fast. CME is a highly risky leveraged bet on the CEE region, despite its recent USD 350mn SPO. Since our last report, there have been no significant changes to our model, while we have only fine-tuned the 2013-15 financials. We are increasing our target price from USD 4.0 to USD 5.0, while downgrading our recommendation from Accumulate to Reduce. CME stock has added more than 45% since our last report and is traded with a huge premium to its peers, which is not justifiable. TVN used to be a diversified player on the Polish media market. The sale of an approx. 75% stake in Onet.pl for PLN 956mn in fresh cash significantly improved TVN’s debt profile. On the other hand, TVN is more risky, as it is dependent solely on the performance of the TV ad market in Poland. We have increased our 12M target price from PLN 9.0 to PLN 13.0 as a consequence of our revised DCF model. Given the current share price, our Reduce recommendation is unchanged. Recommendation Company name
Now
12M target price Before
Now
Date of last report
Before
Change
Agora (PLN)
Reduce
Accumulate
9.0
8.5
5.9%
Cinema City (PLN)
Accumulate Accumulate
34.0
32.5
4.6%
12-Jul-2013
CME (USD)
Reduce
5.0
4.0
25.0%
24-May-2013
Cyfrowy Polsat (PLN)
Accumulate Buy
24.0
19.0
26.3%
18-Sep-2012
TVN (PLN)
Reduce
13.0
9.0
44.4%
05-Feb-2013
Accumulate Reduce
18-Sep-2012
Source: Erste Group Research
Erste Group Research – Sector Report
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All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
Erste Group Research – Erste Sector Media – 25 September 2013
Peer comparison Peers divided into broadcasters, publishers and cinema operators
We divided our peer group comparison into three groups: 1) broadcasters and cable operators, 2) publishers and 3) cinema operators. As there is a lack of peers solely in the CEE region (the Russian broadcaster CTC and one Turkish publisher), we included primarily publicly traded European companies. On the other hand, comparing companies operating in CEE with Western European companies is a little bit misleading, given the markedly different growth prospects of these companies (convergence story), and we would not draw any strong conclusions. The most comparable companies to those in CEE are Russia’s CTC Media and Turkey’s Dogan Yayin. We used Bloomberg data for ratio estimates and our own estimates for the CEE media stocks that we cover. The peer group for Agora is in a separate table below the broadcasters table, similarly to Cinema City (below the publishers table).
TVN with premium on EV/EBITDA, CPS with discount
Cyfrowy Polsat is currently traded with a 1-5% discount to its peer group on EV/EBITDA and with a 12-16% discount on P/E, but with a premium on P/S. Cyfrowy is traded with a discount on P/E and EV/EBITDA vs. its local peer TVN, which is the reason why we would prefer Cyfrowy over TVN. We see the valuation gap between Cyfrowy and TVN as unjustifiable and we expect that it will narrow at least a little bit in the quarters to come. Cyfrowy is the leader in the cash-generative DTH segment, resulting in a higher ability to reduce debt or pay out higher dividends.
CME is traded at discount on P/S ratio, while profitability lags behind peers
CME, despite its recent capital increase, is a highly leveraged company, which negatively weighs on its financial costs. CME is traded with a discount on P/S to its peers (even on the European level). Comparing CME to TVN and CPS, it currently looks expensive (EV/EBITDA).
Peer group comparison (broadcasters) ATRESMEDIA MODERN TIMES GROUP PROSIEBEN SAT.1 RTL GROUP CTC MEDIA INC BRITISH SKY BROADCASTING ITV PLC M6-METROPOLE TELEVISION DOGAN YAYIN HOLDING NEWS CORP-CL A Median CME TVN Cyfrowy Premium/discount (CME) Premium/discount (TVN) Premium/discount (Cyfrowy) Implied value (CME) Implied value (TVN) Implied value (Cyfrowy)
Price 8.7 329.1 31.2 73.2 10.9 874.0 178.9 15.4 0.7 16.5 5.3 14.1 21.3
EV/EBITDA 2013e 2014e 41.0 22.1 12.7 10.8 9.9 9.2 9.5 9.0 5.7 5.5 8.2 7.7 11.4 10.5 6.1 5.9 8.3 7.6 9.2 9.0 9.3 9.0 41.6 14.8 13.2 11.9 8.9 8.4 346% 65% 42% 32% -5% -6% 1.2 3.2 10.0 10.7 22.4 22.8
2015e 15.0 10.3 8.8 8.5 5.1 7.0 9.7 5.7 6.9 8.3 8.4 12.0 10.9 8.2 42% 30% -2% 3.7 10.9 21.8
2013e 2.41 1.61 2.65 1.90 1.95 1.84 2.99 1.42 0.47 1.10 1.87 1.02 2.97 2.51 -45% 59% 34% 9.6 8.9 15.9
P/S 2014e 2.27 1.53 2.50 1.85 1.79 1.76 2.83 1.39 0.44 1.10 1.78 0.91 2.87 2.47 -49% 62% 39% 10.3 8.7 15.3
2015e 2.10 1.46 2.38 1.79 1.66 1.68 2.73 1.35 0.42 1.10 1.67 0.86 2.78 2.42 -48% 66% 45% 10.2 8.5 14.7
2013e 64.1 16.5 16.8 16.0 10.7 14.9 16.9 15.8 15.1 62.8 16.3 -13.1 32.2 14.3 n.m. 97% -12% n.m. 7.1 24.4
P/E 2014e 29.4 14.0 15.3 15.4 10.3 13.3 15.3 14.8 13.0 17.5 15.0 119.9 24.5 12.6 698% 63% -16% 0.7 8.7 25.4
2015e 19.7 12.2 14.1 14.4 9.3 11.9 13.9 13.8 10.8 16.3 13.8 26.5 22.0 12.1 92% 59% -12% 2.7 8.9 24.3
Source: Bloomberg, Erste Group estimates
Erste Group Research – Sector Report
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All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
Erste Group Research – Erste Sector Media – 25 September 2013
Agora trades with significant discount on EV/EBITDA and P/S, but with premium to P/E
When looking at Agora, it is currently traded with a premium on P/E 2013e15e, but with a significant discount on EV/EBITDA and P/S. The relative valuation indicates that Agora is under-priced in relation to its European peers on EV/EBITDA and P/S, but with a significant premium on P/E (partly due to losses emerging from the minority stake in a new FTA TV channel start up booked via the equity method).
Publisher peer group comparison LAGARDERE S.C.A. PEARSON PLC AXEL SPRINGER AG HURRIYET GAZETECILIK DAILY MAIL&GENERAL Median Agora Premium/discount Implied value
Price 23.4 1284.0 40.1 0.7 780.0 9.5
2013e 7.3 12.5 8.1 6.7 10.3 8.1 3.9 -52% 19.7
EV/EBITDA 2014e 6.6 11.5 8.5 6.2 9.9 8.5 3.7 -57% 22.1
2015e 6.3 10.4 8.2 6.3 9.3 8.2 3.6 -56% 21.8
2013e 0.41 1.77 1.17 0.42 1.63 1.17 0.44 -62% 25.2
P/S 2014e 0.41 1.84 1.27 0.40 1.61 1.27 0.43 -66% 28.0
2015e 0.40 1.80 1.25 0.37 1.55 1.25 0.43 -66% 27.8
2013e 13.9 16.5 15.2 113.3 15.2 15.2 95.0 525% 1.5
P/E 2014e 12.7 14.4 15.5 13.6 14.3 14.3 50.1 250% 2.7
2015e 11.9 12.9 14.3 12.6 13.0 12.9 36.3 181% 3.4
Source: Bloomberg, Erste Group estimates
CCI with discount to peers
In comparison with international companies operating in the cinema and entertainment sectors, Cinema City is traded at a discount on each multiple, which is not justifiable, in our view. We remain relatively cautious on CCI's plans to increase its fleet significantly (mainly in Romania); nevertheless, the valuation gap will most likely be closed soon.
Theater operators peer group comparison Price CINEMARK HOLDINGS INC 30.9 REGAL ENTERTAINMENT GROUP 18.8 VILLAGE ROADSHOW LTD 6.5 KINEPOLIS 104.5 CINEWORLD GROUP PLC 377.3 SKYCITY ENTERTAINMENT GROUP 3.9 Median Cinema City 31.0 Premium/discount Implied value
2013e 8.3 8.1 7.3 9.6 9.1 9.0 8.7 8.3 -4% 32.3
EV/EBITDA 2014e 7.6 7.7 6.8 9.2 8.4 7.9 7.8 7.7 -2% 31.6
2015e 6.9 7.6 6.7 8.8 7.7 7.2 7.4 7.1 -4% 32.1
2013e 1.33 0.96 1.04 2.38 1.39 2.47 1.4 1.22 -11% 34.3
P/S 2014e 1.22 0.91 0.98 2.31 1.31 2.26 1.3 1.13 -11% 34.4
2015e 1.15 0.89 0.95 2.25 1.22 2.10 1.2 1.04 -12% 34.7
2013e 18.0 18.0 16.1 15.5 16.5 15.6 16.3 14.5 -11% 34.4
P/E 2014e 14.6 16.3 13.8 13.9 15.0 13.9 14.3 12.4 -13% 35.0
2015e 13.0 15.1 12.9 12.5 13.7 13.0 13.0 10.7 -18% 36.5
Source: Erste Group estimates, Bloomberg
Erste Group Research – Sector Report
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Erste Group Research – Erste Sector Media – 25 September 2013
Market overview The global economy recovery is still fueled by emerging market growth, while the European countries had to take a ‘time out’ to consolidate budgets. Debt worries have overwhelmed Europe, which resulted in lower GDP and consumer spending (and of course with negative implications for ad market performance). Advertiser budgets are highly correlated with the consumer situation, as the vast majority of advertisers operate in secondary and tertiary sectors. Unemployment is still on its growth path, while the peak is well in front of us in most European counties, which will still limit ad spending growth in the quarters to come. Retail segment – slowdown visible in 2012-13, mild improvement in 2014
Unemployment and retail sales are the key movers of advertiser budgets (more detailed unemployment and retail sales developments are depicted in the graphs below). CEE countries have seen a slowdown in 2012-13, due to fiscal consolidation and renewed consumer pessimism. Retail sales in selected CEE countries (y/y, real terms, in %) 20.0 16.0 12.0 8.0 4.0 0.0 2007
2008
2009
2010
2011
2012
2013e
2014e
-4.0 -8.0 -12.0 -16.0 -20.0 CZE
ROM
BUL
SVK
POL
CRO
Source: National statistics, Erste Group estimates
Unemployment in selected CEE countries (in %) 18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2007
2008
2009
2010
2011
2012
CZE
ROM
BUL
SVK
POL
CRO
2013e
2014e
Source: National statistics, Erste Group estimates Erste Group Research – Sector Report
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Erste Group Research – Erste Sector Media – 25 September 2013
Ad spending recovery should be closely correlated with GDP recovery
We based our ad spending estimates on the GDP outlook, which is presented below, and on the retail sales outlook. It seems that all advertising markets in CEE will see declining budgets in 2013. A mild recovery should arrive in 2014-15, as consumer confidence and spending should advance (our GDP outlook – see below). GDP outlook (y/y dynamics) 5.0%
4.3% 3.8%
4.0% 3.0% 2.0%
4.2% 3.2%
2.6% 1.8% 1.3%
1.7%
2.4% 1.9% 1.1%
1.0%
1.9%
2.5% 2.2% 2.3%
2.0% 1.7%
1.7%
0.8% 0.2% 0.3%
0.7%
BUL
ROM
0.8%
0.5% 0.0%
0.0% -1.0% -2.0%
-0.2% CZE -0.8%
POL
SKK
-1.6%
-1.5%
CRO -1.2%
-0.8%
-2.0%
-3.0% -4.0% -5.0%
-4.9% -5.4%
-6.0%
-6.0%
-7.0%
-6.6%
-8.0% 2009
2010
2011
2012
2013e
2014e
Source: National statistics, Erste Group estimates
Not an easy time for ad markets in CEE in 2011-13, first signs of improvement already visible
The ad market slowed significantly in 2011-13, as advertisers cut back their budgets as the global macroeconomic situation plunged. The situation on the European periphery (Greece, Spain, Portugal and - partly - Italy) has caused the known impact on their markets. Their ad markets have fallen even more sharply than their economies, as local advertisers cut back to reduce losses and preserve cash, and multinationals withdrew budgets to redeploy in more economically healthy regions. Partly as a result of the investor flight, recessions have deepened in the southern part of the Eurozone and partly spilled over into the northern part. Ad expenditures in Peripheral Eurozone fell 15.4% in 2012 and are expected to fall by high single digits in 2013. Ad markets in Central Europe are performing more like countries such as France or Germany than the much faster growing markets of Eastern Europe such as Russia. These countries have strong trading links with Western Europe and their ad markets follow these trends. This is partly because many of these Central European markets have strong trading links with Western Europe. One exception is the situation in the Czech Republic (and partly in Slovakia), where the pricing policy of the major player (CME) had a strongly negative impact on total ad markets there in 1H13 (double-digit TV ad market decline).
Market is gaining a confidence; recovery is coming, hopefully
We have already seen the first signs of stabilization in the middle of 2013; the market is normalizing after a period of high nervousness and short-term purchasing. It is obvious that the market is continuously gaining confidence and returning to professional normalized planning cycles. The move from complete uncertainty and nervousness is changing into regular operating mode, a more confident approach leading to committing for a longer time than just the next couple weeks. The recovery across the CEE region should come in 2014-15, while a mild improvement will most likely be visible already in late 2H13 (there are still declines on the majority of CEE markets, but with a slower pace y/).
Erste Group Research – Sector Report All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
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Erste Group Research – Erste Sector Media – 25 September 2013
TV advertising spending in CEE in 2011-14e (y/y, in nominal terms) 11.0% 9.0% 6.9%
7.0% 5.0%
4.7%
4.3%
3.9%
3.7%
3.2%
2.9%
3.0%
2.5%
2.1%
1.6%
0.7%
1.0% -1.0%
CZE
ROM
BUL
SVK
SLO
-0.7%
POL
CRO -1.6%
-3.0% -5.0%
-4.5% -5.4%
-4.6% -4.8%
-4.8% -5.5%
-4.9%
-5.8%
-7.0%
-5.2%
-6.9%
-7.4%
-7.3%
-9.0%
-8.3%
-11.0%
-10.3%
-10.7%
2011
2012
2013e
2014e
Source: Erste Group estimates, TVN and CME data
2012-13 down, mild recovery to occur in 2014
We expect the Polish ad market to decrease by low single digits this year (4.8% y/y), similarly to Slovakia (-4.9% y/y), while the Czech ad market has been hit hard by CME’s recent strategy to increase prices significantly. We expect the Czech ad market to shrink 10.3% y/y in 2013, followed by a 6.9% y/y recovery in 2014. The graph below depicts our estimates for 2013, 2014 and 2015+ (i.e. the 2015-17 period average). Our mid-term advertising spending outlook dynamics should follow this logic - the more developed the country, the lower the ad spending dynamic that can be anticipated, while the least developed country, with high convergence potential, should see the highest advertising spending growth dynamic. Erste advertising outlook (y/y dynamics) 30% 25% 20% 15% 10% 5%
2015e
2014e
2013e
2012
3Q2012
2Q2012
ROM
1Q2012
3Q2011
CZE
4Q2011
2Q2011
1Q2011
-15%
2009
-10%
2008
0% -5%
-20% -25% -30% -35% BUL
SVK
SLO
POL
CRO
Source: CME, TVN, Starlink, Eurostat, Erste Group estimates
Erste Group Research – Sector Report All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
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Erste Group Research – Erste Sector Media – 25 September 2013
Which media should benefit and which should worry? Traditional newspapers still suffering, movement towards Internet continues
The recent economic downturn largely confirmed the LT trend of newspaper advertisers moving toward the Internet, where they can more easily target a particular part of the advertisers’ target group. Circulation is still under pressure and we do not see any triggers to move circulation back to a growth pace. Generally speaking, it is possible to expect stabilization at the current low levels in the near future (stabilization = low single-digit decline y/y), while the movement to the Internet will continue. It is fair to say, however, that publishers are contributing to the shift by putting more and more emphasis on the electronic versions of their brands. Traditional publishers are therefore undermining themselves by offering advertisers the use of their own electronic versions of their newspapers, as they do not want to be left out of the Internet market boom. The overall impact of the shift on media houses depends on the extent to which publishers are capable of monetizing the traffic attained via the Internet and their focus on new media. The graph below shows the most recent media ad spending dynamic in Poland (based on Agora data). Share of ad spend by media in Poland 100% 10%
90% 80% 70%
1% 8% 8% 14%
12%
14%
1% 9%
1% 8%
8%
7%
13%
12%
16%
11%
47%
47%
50%
21%
2% 8%
7%
1% 7%
8%
11%
60% 13%
18%
2% 8%
7%
11%
9%
9%
8%
7%
5%
50%
50%
49%
49%
40% 30% 20% 10% 0% 2008
2009 TV
Dailies
2010 Magazines
2011 Radio
Outdoor
2012 Cinema
1H2013 Internet
Source: Agora, Erste Group estimates
The least dynamic segment is dailies, whereas the most dynamic is the Internet. The trend of an increasing market share for the Internet is likely to continue. Dailies and magazines are the two segments that have seen the biggest declines. Segments like TV, outdoor and radio and other distribution channels have maintained their shares at more stable levels (advertisers tend to diversify their marketing portfolios).
Erste Group Research – Sector Report
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Erste Group Research – Erste Sector Media – 25 September 2013
Advertising market in Poland (y/y dynamics) 39%
40%
42%
38% 35% 32%
30%
27%
20% 17%
13%
11%
10%
6% 2%
-12% -16%
-20%
-11%
-15% -20%
-18%
12% 10%
-18%
8%
8%
-7%
-15% -19%
-18%
2Q13
-10%
-5% -8%
1Q13
-4%
4Q12
-8%
3Q12
-7%
2Q12
-6%
1Q12
-9%
4Q11
-4%
-16%
-20% -25%
-10%
3Q11
-10% -10%
4Q10
-3%
3Q10
-8%
-14%
2Q10
1Q10
-8%
12%
11%
1%
4Q09
-3%
3Q09
2Q09
-3%
1Q09
4Q08
3Q08
2Q08
-10%
1Q08
0%
18%
12%
7%
6%
2Q11
9%
19%
18%
17%
18%
1Q11
10% 8%
10%
25%
19% 22%
18%
-14% -15% -16% -18%
-24% -29%
-30% -33%
-40%
Internet
TV
-3%
Magazines
Radio
Outdoor
Dailies
-32%
Cinema
Source: Agora data, Starlink
Internet to benefit most from ad redistribution among media
The LT trend of advertising budget declines for newspapers and magazines seems to be continuing. The likely winner of the switch is the Internet, followed by TV, which is expected to stay more or less flat at around 40%. ZenithOptimedia’s global redistribution outlook is in line with our valuation and estimates. Share of ad spend by media (2012, 2015e) 45.0% 40.1%
40.0%
39.5%
35.0% 30.0% 24.3%
25.0% 20.0%
18.7%
18.3%
15.1%
15.0% 8.6% 6.9%
10.0%
7.0% 6.6%
6.8% 6.9%
5.0% 0.5% 0.6%
0.0% Newspapers
Magazines
Television 2012
Radio
Cinema
Outdoor
Internet
2015e
Source: ZenithOptimedia - June 2013 outlook
Erste Group Research – Sector Report
Page 10
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013
Agora from Accumulate to Reduce
All pric es are thos e c urrent at the end of the previ ous tr adi ng session unl ess other wise indicated and ar e s ourc ed fr om loc al exc hanges vi a Reuters, Bl oomberg and other vendors .
Erste Gr oup R es earc h – C ompany R eport Agora | Medi a | Poland 24 September 2013
TEST
PLN mn 2012 2013e Net sales 1,138.6 1,072.0 EBITDA 83.2 105.8 EBIT -13.1 10.9 Net result after min. -8.1 5.1 EPS (PLN) -0.16 0.10 CEPS (PLN) 1.73 1.96 BVPS (PLN) 23.33 23.60 Div./share (PLN) 0.00 0.00 EV/EBITDA (x) 6.3 4.3 P/E (x) nm 95.0 P/CE (x) 6.0 4.9 Dividend Yield 0.0% 0.0% Share price (PLN) close as of 23/09/2013 Number of shares (mn) Market capitalization (PLN mn / EUR mn) Enterprise value (PLN mn / EUR mn)
2014e 1,095.8 113.0 19.2 9.7 0.19 2.03 23.92 0.50 4.0 50.1 4.7 5.2%
2015e 1,119.6 115.3 25.8 13.4 0.26 2.02 23.81 0.50 3.9 36.3 4.7 5.2% 9.53 50.9 485 / 115 460 / 109
52 weeks
11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0
Performance in PLN
Agora
WIG 20
12M
6M
3M
1M
32.0%
16.9%
14.7%
14.8%
Reuters AGOD.WA Free float 60.1% Bloomberg AGO PW Shareholders Agora Hold. (11.6%) Div. Ex-date ING Otwarty Fundusz Emerytalny (13.37%) Target price 9.00 Homepage: www.agora.pl
Newspaper segment behind underperformance Recommendation: Agora stock has added more than 30% since our last report. We have increased our 12M target price from PLN 8.5 to PLN 9.0, while downgrading our recommendation from Accumulate to Reduce.
Analyst: Vaclav Kminek +420 224 995 289
[email protected]
Cost-cutting: Agora started cost-cutting efforts, which more than offset the weak ad market performance and improved its operating performance (ad revenues were down 15.3% y/y in 1H13, while operating EBITDA was up 12.3% y/y in the same period). Ad market: We expect the Polish ad market to be down 4.8% y/y in 2013, followed by a 2.5% y/y recovery in 2014. The core newspaper market will underperform the total ad market. We expect revenues to grow by CAGR of 1.9% in 2013e-2017e, fueled by online growth (CAGR of 10.5%) and the contribution from the Helios network expansion (CAGR of 6.8% in 2013e2016e). Headquarters: The most valuable fixed asset is Agora’s headquarters in Warsaw. The estimated market value of the building is approx. PLN 350 400mn (more than 80% of Agora’s current mcap). New TV segment: Agora is diversifying its revenue streams towards the Internet, outdoor, radio and cinema operations and recently acquired the license for a new FTA film channel (42% stake in JV with Kino Polska).
Erste Group Research – Sector Report
Page 11
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013 Valuation: Agora is traded at EV/EBITDA2014 of 4.0 and P/E2014 of 50.1. Agora is under-priced in relation to its European peers on EV/EBITDA and P/S, while it has a significant premium on P/E.
Investment case Strong balance sheet, but P&L suffers, due to shrinking core newspaper segment
Agora is mainly exposed to the ‘least’ attractive advertising segment – newspapers (where ads were down by 28% in 1H13) – which weighs negatively on its financials. Agora started cost-cutting efforts, which more than offset the weak ad market performance and improved its operating performance (ad revenues were down 15.3% y/y in 1H13, while operating EBITDA was up 12.3% y/y in the same period). The newspaper ad market is still under pressure, due to declining circulation (down 10.8% y/y in 17M13, Gazeta Wyborcza was down 13.6% y/y during the same period). Agora is, at the same time, focused on the diversification of its media portfolio (see below), while its ‘free’ newspapers, both Metro and on the Internet, should help to offset the LT decline in the newspaper’s ad market share. It should be noted that newspapers still generate profits and cash, flowing from copy sales and advertising revenues. Agora also intends to launch its first FTA channel in the middle of 2014, in which Agora will have only a minority stake (42% share).
Development of revenue stream by segments (2009-17e) 1300.0
1100.0
900.0
46.4 91.6
87.8 167.0
164.1
75.1 700.0
110.1 175.0
77.6 86.1
84.9
169.8
222.2
233.3
244.0
258.2
198.8 163.9
164.6
165.4
156.2
157.0
159.5
167.9
175.2
184.7
192.5
81.0
81.7
87.7
88.2
90.5
110.5
122.2
136.4
149.0
161.8
325.8
308.2
293.5
282.2
269.9
2013e
2014e
2015e
2016e
2017e
139.3 162.1 88.1
101.8 114.0
500.0
300.0
168.8
114.0 609.1
552.4
484.4
388.4
100.0
-100.0
2009
2010
New spaper
Internet
2011 Magazines
2012 Radio
Outdoor
Other
Helios
Source: Erste Group estimates, Agora, new TV segment will be booked as equity method (no impact on the revenue line as well as operating performance
Headquarters provide strong support for share price
Agora finished its headquarters in Warsaw (Czerska 8/10 street) in 2002 and fully owns and operates the building, with 39.23tsd sq m of usable area, and the land under and around the building. Valuation: Given the favorable location, age and quality of the asset, we assume a rental rate at EUR 15/m2/month as a realistic assumption (see more in the table below).
Erste Group Research – Sector Report
Page 12
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013 Summary of the Headquarters valuation Rentable area 39223
(m2)
Rental rate
15
EUR/m2/month
Net income
6.64
(EUR mn)
Yield
Value (EUR mn) Value (PLN mn)
6.00%
110.6
464.6
7.00%
94.8
398.2
8.00%
83.0
348.4
9.00% 73.7 309.7 Source: Agora, Erste Group assumptions
With 7-8% yield, the estimated market value of the building would be around PLN 350- 400mn, which is strong support for Agora’s share price. Agora let go of 11% of employees
As a part of the cost-cutting program, Agora let go 380 FTEs (approx. 11% of its employees). This significantly improved the operating performance (by more than PLN 30mn annually).
Agora is entering new ad market segment – TV
Stopklatka S.A. (JV company, where Agora has some 42% stake) recently obtained a license for a free-to-air digital terrestrial specialized film channel on multiplex one. Agora aims to launch the new channel in the middle of 2014. The Polish TV ad market is increasingly fragmented, while Agora’s new channel will barely have more than 2-3% audience share. Despite the fact that penetration into the new segment will bring synergies (ad crossselling), its audience share will not bring any pricing power and this channel will be loss-making (at least in its first years of operation).
Newsprint cost steadily decreasing
Agora operates in the less-attractive newspaper segment, which should underperform other media segments in years to come. Cost saving is a powerful tool, but it is necessary to mention that the main cost-cutting measures are already over. One of the most important cost item is newsprint paper cost (approx. 15% of total cost in the newspaper segment), which has already peaked in 2011 and is steadily mildly decreasing. For more detailed price development of European newsprint paper, see the chart below. European newsprint cost development (EUR/t, PLN/t) 560
2500 2400
540
2300 520 2200 500
2100
480
2000 1900
460
1800 440 1700 420
IX-13
II-13
V-13
X-12
IV-12
VII-12
IX-11
XII-11
II-11
V-11
X-10
III-10
FOEXSTD Index (in EUR)
VII-10
XII-09
V-09
VIII-09
I-09
X-08
III-08
VII-08
XI-07
I-07
IV-07
400
VIII-07
1600 1500
FOEXSTD Index (in PLN)
Source: Bloomberg (ticker FOEXSTD Index)
Erste Group Research – Sector Report
Page 13
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013 2Q13 review: Cost savings and strong ticket sales more than offset weak ad market
Total ad revenues reached PLN 148.3mn (down 15.6 y/y), while circulation revenues were down 12.8% y/y to PLN 33.4mn. Revenues from the cinema segment were up 29.2% y/y to PLN 44.3mn, supported by seven new openings. The outdoor segment presented solid figures (revenues up 4.3%, EBIT up 133%), despite the shrinking outdoor market (down 18% y/y in 2Q13). The newspaper segment presented relatively weak figures – ad revenues down 30% y/y. Operational costs were down 4.7% y/y, while revenues were down 4.0% y/y, which had a positive impact on the operating level. The cost side was supported by the recent restructuring (staff costs were down 11.5% y/y, while external services were down 3.0% y/y). Agora continued in cutting its own marketing spending by 21.8% y/y to PLN 17.9mn, which partly improved the headline figures. Consolidated, IFRS Reported (PLN mn)
Expected
Reported
2Q 13a
2Q 12
y/y
Erste
Cons.
vs. Erste
vs. Cons.
Revenue
271.9
283.1
-4.0%
266.1
269.0
2.2%
1.1%
EBITDA
28.9
26.8
7.8%
27.9
28.9
3.7%
0.0%
4.3
2.3
87.0%
2.4
3.8
80.2%
13.2%
-14.3%
n.m.
-53.8%
EBIT Net earnings
0.6
0.7
-0.9
1.3
Operating margin
1.6%
0.8%
0.9%
1.4%
Net margin
0.2%
0.2%
-0.3%
0.5%
Source: Agora, Bloomberg, PAP, Erste Group Research;
Management expects the total ad market to be down -5-8% in 2013. The newspaper ad market is expected to shrink by -24-27%. Agora presented a relatively strong set of figures, supported by its recent restructuring, strong ticket sales in the cinema segment and solid performance of the outdoor segment. The positives from restructuring will continue in the quarters to come and if Agora is able to offset the weakness of the ad market. Change in estimates – newspaper segment slashed
In the table below, we present changes in our estimates for key financial figures. We have lowered the newspaper segment performance significantly, as the flagship Gazeta Wyborcza shows quite disappointing figures, with circulation still under pressure (more than we originally expected). Change in estimates Consolidated, IFRS (PLN, mn) Revenues EBITDA EBIT Net profit
2013e Now Before Change 1072.0 105.8 10.9 5.1
1117.9 118.4 24.9 21.1
-4.1% -10.6% -56.1% -75.8%
2014e Now Before Change 1095.8 113.0 19.2 9.7
1154.7 126.1 34.6 28.3
-5.1% -10.4% -44.5% -65.8%
2015e Now Before Change 1119.6 115.3 25.8 13.4
1177.6 -4.9% 125.4 -8.1% 38.6 -33.2% 31.0 -56.8%
Source: Erste Group Research
Polish advertising market should grow by CAGR of 3.8% in 2013e-20176e, Agora to underperform market
We predict 2013-17 revenue CAGR of 1.9% (below the total ad market) and EBITDA CAGR of 4.6% (operating leverage). One should also realize that Agora is a dominant player in most of its segments, giving it bargaining power and economies of scale. Synergies between print and electronic versions are vast, while the technology shift can bring electronic newspaper monetization.
Erste Group Research – Sector Report
Page 14
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013 Agora’s shares on ad market in respective segments 45.0%
44.0% 42.0%
41.4%
40.5%
38.0%
40.0% 35.0%
32.0%
30.0% 30.0%
27.0%
25.0%
26.5%
25.0% 20.0% 15.0%
12.0%
12.0%
12.0%
12.0%
12.0%
11.6%
12.1%
13.5% 10.4%
10.0%
10.0% 5.0% 0.0% 2008 Newspapers (Gazeta & Metro)
2009
2010 Radio
Outdoor
2011
2012
Magazines
Source: Agora
Key positive highlights about Agora and its business model:
Financial strength, cash-positive Dominant player in newspapers, outdoor and magazines (bargaining power) Growing importance on Internet (catching up to peers) Earnings growth prospects through operating leverage, cost efficiency and convergence of Poland to WE levels (top line) Diversification of revenues (newspapers, outdoor, magazines, radio, cinema network) Agora’s headquarters, with almost 40tsd sq m usable area, is strong support for the share price (Agora’s headquarters is worth PLN 78/share)
Points of concern:
Falling readership and copy sales of Gazeta Wyborcza Newspaper segment is losing ad market share, while newspaper segment accounts for more than 40% of Agora’s revenues
Erste Group Research – Sector Report
Page 15
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013
Financials Strong balance sheet enables M&A activity
As mentioned earlier, Agora is in a solid financial position, with a strong balance sheet, which enables it to overcome the cyclical weaknesses of the ad market or M&A activity. The total net cash position is expected to be at PLN 34mn by YE13.
Net debt (debt – cash), outlook (in PLN mn) 0 2009
2010
2011
2012
2013e
2014e
2015e
2016e
-34
-36
-34
-33
-20 -21 -40 -60 -80 -85 -100 -110
-120 -140 -160
* PLN 1 / share dividend =PLN 50.9mn payment * More than PLN 40mn CAPEX due to Helios network expansion
Helios acquisition PLN 97mn
-180 -200
-188
Net debt (debt - cash)
Source: Erste Group Research, Company data
Target price mildly up – real assets as anchor
All in all, we have increased our 12M target price from PLN 8.5 to PLN 9.0, while downgrading our recommendation from Accumulate to Reduce. Agora’s strong balance sheet (no debt) is the most important part of its story; nevertheless, its growth prospects lag behind those of its peers in the media segment (especially TV broadcasters). The DCF valuation for Agora can be found in the tables below. Agora’s headquarters in Warsaw (estimated value PLN 7-8/share) is a strong support for the share price.
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013 WACC calculation 2014e
2015e
2016e
2017e
2018e
Term. value Normalized
Risk free rate Equity risk premium Beta Cost of equity
4.5% 6.0% 1.0 10.5%
4.5% 6.0% 1.0 10.5%
4.5% 6.0% 1.0 10.5%
4.5% 6.0% 1.0 10.5%
4.5% 6.0% 1.0 10.5%
5.0% 5.7% 1.0 10.7%
Cost of debt Effective tax rate After-tax cost of debt
5.0% 19.0% 4.1%
5.0% 19.0% 4.1%
5.0% 19.0% 4.1%
5.0% 19.0% 4.1%
5.0% 19.0% 4.1%
5.5% 19.0% 4.5%
75% 8.9%
75% 8.9%
75% 8.9%
75% 8.9%
75% 8.9%
65% 8.5%
(PLN mn)
2014e
2015e
2016e
2017e
2018e
Normalized
Sales growth EBIT EBIT margin Tax rate Taxes on EBIT NOPLAT
2.2% 19.2 1.8% 19.0% -3.7 15.6
2.2% 25.8 2.3% 19.0% -4.9 20.9
1.1% 31.3 2.8% 19.0% -5.9 25.3
2.3% 38.9 3.4% 19.0% -7.4 31.5
2.5% 45.4 3.8% 19.0% -8.6 36.8
1.5% 48.2 4.0% 19.0% -9.1 39.0
93.8 104.4% -7.4 -31.0% -97.9
90.6 89.1% -4.7 -19.7% -80.7
89.8 90.7% -4.3 -35.8% -81.5
86.0 96.6% -5.1 -19.8% -83.1
83.8 94.2% -4.3 -15.0% -78.9
85.5 102.0% -0.5 -3.0% -87.2
4.1
26.1
29.4
29.3
37.4
36.8
24.4
0.5% 461.0 301.1
Equity weight WACC
DCF valuation
+ Depreciation Capital expenditures / Depreciation +/- Change in working capital Chg. working capital / chg. Sales - Capital expenditures Free cash flow to the firm Terminal value growth Terminal value Discounted free cash flow - Dec 31 2013 Enterprise value - Dec 31 2013
3.7 394.9
Minorities Non-operating assets Net debt Other adjustments Equity value - Dec 31 2013
0.0 0.0 -34.3 0.0 429.2
Number of shares outstanding (mn) Cost of equity 12M target price per share (PLN)
50.9 10.5% 9.0
Current share price (PLN) Up/Downside
9.5 -5.5%
PV of detailed period 24%
20.8
Terminal value EBIT margin
WAC WACC
PV of terminal value 76%
22.7
Sensitivity (per share)
WAC WACC C
Enterprise value breakdown
22.0
9
3.0%
3.5%
4.0%
4.5%
5.0%
7.5% 8.0% 8.5% 9.0% 9.5%
8.0 7.6 7.3 7.1 6.8
8.9 8.5 8.2 7.8 7.6
9.9 9.4 9.0 8.6 8.3
10.9 10.3 9.8 9.4 9.0
11.8 11.2 10.7 10.2 9.8
9 7.5% 8.0% 8.5% 9.0% 9.5%
-0.5% 8.9 8.6 8.2 8.0 7.7
1.0% 10.5 9.9 9.5 9.0 8.7
1.5% 11.2 10.5 10.0 9.5 9.1
Terminal value growth 0.0% 0.5% 9.4 9.9 9.0 9.4 8.6 9.0 8.3 8.6 8.0 8.3
Source: Erste Group estimates
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Page 17
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Agora | Media | Poland 25 September 2013 Income Statement (IAS, PLN mn, 31/12)
Net sales Invent. changes + capitalized costs Total revenues Other operating revenues Material costs Personnel costs Other operating expenses EBITDA Depreciation/amortization EBIT Financial result Extraordinary result EBT Income taxes Result from discontinued operations Minorities and cost of hybrid capital Net result after minorities
Balance Sheet
2010
2011
2012
2013e
2014e
2015e
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
1,116.70 0.00 1,116.70 0.00 -334.20 -283.20 -321.60 177.70 -92.80 84.90 3.00 0.00 87.90 -16.00 0.00 0.00 71.90
1,234.60 0.00 1,234.60 0.00 -365.70 -312.60 -401.90 154.40 -102.50 51.90 3.10 0.00 55.00 -11.20 0.00 0.00 43.80
1,138.60 0.00 1,138.60 0.00 -325.50 -310.20 -419.70 83.20 -96.30 -13.10 2.20 0.00 -10.10 2.02 0.00 0.00 -8.08
1,072.04 0.00 1,072.04 0.00 -304.33 -279.07 -382.80 105.84 -94.92 10.92 -4.53 0.00 6.39 -1.28 0.00 0.00 5.11
1,095.84 0.00 1,095.84 0.00 -303.72 -273.46 -405.71 112.95 -93.73 19.22 -3.98 0.00 15.24 -3.05 0.00 -2.50 9.69
1,119.61 0.00 1,119.61 0.00 -304.53 -267.99 -431.83 115.25 -89.48 25.78 -3.43 0.00 22.35 -4.47 0.00 -4.50 13.38
2010
2011
2012
2013e
2014e
2015e
427.34 763.05 170.87 1,361.26 22.55 239.35 0.00 182.36 444.26 1,805.52 1,221.05 15.50 0.00 0.00 0.00 188.83 84.66 273.50 66.37 229.10 295.46 1,805.52
419.24 760.16 221.78 1,401.17 29.21 246.41 0.00 125.51 401.12 1,802.30 1,246.06 17.25 0.00 0.00 0.00 142.46 78.88 221.34 70.53 247.11 317.62 1,802.29
422.06 765.67 54.33 1,242.06 22.49 247.36 0.00 190.92 460.76 1,702.82 1,188.37 17.68 0.00 0.00 0.00 99.38 71.81 171.19 103.01 222.57 325.54 1,702.82
413.00 763.30 155.02 1,331.32 21.17 240.13 0.00 93.72 355.02 1,686.34 1,202.31 8.84 0.00 0.00 0.00 94.38 72.53 166.91 97.85 210.43 308.27 1,686.34
404.02 780.38 155.26 1,339.66 21.64 242.79 0.00 85.43 349.87 1,689.53 1,218.44 4.42 0.00 0.00 0.00 89.38 73.26 162.63 92.96 211.07 304.01 1,689.53
395.42 783.70 155.51 1,334.63 22.11 247.58 0.00 73.44 343.14 1,677.76 1,212.57 2.21 0.00 0.00 0.00 84.38 73.99 158.37 88.31 216.30 304.60 1,677.76
2010
2011
2012
2013e
2014e
2015e
169.46 -138.10 26.78 58.14
152.80 -139.24 -88.06 -56.86
111.21 -127.80 -72.74 65.41
98.50 -179.16 -16.53 -97.20
105.68 -97.92 -16.05 -8.29
109.74 -80.68 -41.04 -11.99
(IAS, PLN mn, 31/12)
Intangible assets Tangible assets Financial assets Total fixed assets Inventories Receivables and other current assets Other assets Cash and cash equivalents Total current assets TOTAL ASSETS Shareholders'equity Minorities Hybrid capital and other reserves Pension and other LT personnel accruals LT provisions Interest-bearing LT debts Other LT liabilities Total long-term liabilities Interest-bearing ST debts Other ST liabilities Total short-term liabilities TOTAL LIAB. , EQUITY
Cash Flow Statement (IAS,PLN mn, 31/12)
Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities CHANGE IN CASH , CASH EQU.
Margins & Ratios Sales growth EBITDA margin EBIT margin Net profit margin ROE ROCE Equity ratio Net debt Working capital Capital employed Inventory turnover Source: Company data, Erste Group estimates
2010
2011
2012
2013e
2014e
2015e
0.6% 15.9% 7.6% 6.4% 5.9% 6.1% 68.5% -85.0 148.8 1,236.3 17.3
10.6% 12.5% 4.2% 3.5% 3.6% 3.3% 70.1% -110.4 83.5 1,231.8 14.1
-7.8% 7.3% -1.2% -0.7% -0.7% -0.8% 70.8% -21.3 135.2 1,256.6 12.6
-5.8% 9.9% 1.0% 0.5% 0.4% 0.7% 71.8% -34.3 46.8 1,249.4 13.9
2.2% 10.3% 1.8% 1.1% 0.8% 1.2% 72.4% -35.9 45.9 1,260.2 14.2
2.2% 10.3% 2.3% 1.6% 1.1% 1.6% 72.4% -33.5 38.5 1,255.2 13.9
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cinema City | Media | Netherlands 25 September 2013
Cinema City Accumulate
All pric es are thos e c urrent at the end of the previ ous tr adi ng session unl ess other wise indicated and ar e s ourc ed fr om loc al exc hanges vi a Reuters, Bl oomberg and other vendors .
Erste Gr oup R es earc h – C ompany R eport Cinema City | Medi a | Netherlands 24 September 2013
TEST
EUR mn 2012 2013e Net sales 280.7 308.2 EBITDA 60.2 69.1 EBIT 29.7 37.4 Net result after min. 24.8 25.8 EPS (EUR) 0.48 0.50 CEPS (EUR) 1.03 1.12 BVPS (EUR) 5.03 5.54 Div./share (EUR) 0.00 0.00 EV/EBITDA (x) 8.8 7.9 P/E (x) 13.2 14.5 P/CE (x) 6.2 6.5 Dividend Yield 0.0% 0.0% Share price (PLN) close as of 23/09/2013 Number of shares (mn) Market capitalization (EUR mn) Enterprise value (EUR mn)
2014e 331.9 74.5 41.6 30.2 0.59 1.23 6.13 0.00 7.2 12.4 6.0 0.0%
2015e 359.3 80.5 46.3 35.1 0.69 1.36 6.81 0.34 6.6 10.7 5.4 4.7% 31.0 51.2 375.6 547.9
52 weeks 36 34 32 30 28 26 24
Performance in EUR
Cinema City
WIG
12M
6M
3M
1M
7.7%
11.0%
6.3%
-0.1%
Reuters CCIY.WA Free float 46.1% Bloomberg CCI PW Shareholders Div. Ex-date I.T. Int. Theatres (53.89%) Target price 34.0 Homepage: www.cinemacity.nl
Promising expansion strategy, valuation gap to peers Recommendation: We have increased our 12M target price from PLN 32.5 to PLN 34.0, based on our revised DCF model, while we have maintained our recommendation at Accumulate.
Analyst: Vaclav Kminek +420 224 995 289
[email protected]
Earnings: CCI presented relatively strong 2Q13 results, supported by new openings and real estate acquisitions (revenues up 11% y/y, EBITDA up 22.4% y/y). In 2H13, we expect revenue growth to slow down to 7.7% y/y (vs. 12.6% in 1H13), mainly due to the high base effect, while EBITDA is expected to be up 11.1% y/y (vs. 20.3% in 1H13). Expansion plan: CCI has an ambitious roll-out plan, with an additional 340 screens (+35%) planned in 31 locations (63% in Romania), which will limit dividend capacity. We expect 189 screens (+19.5%) to be added during 2013-16, of which 53% are to be opened in Romania, 23% in Israel, 16% in Bulgaria and 8% in Poland. Valuation: CCI is traded at EV/EBITDA2013 of close to 7.9 and P/E2013 of 14.5, respectively some 4% and 11% below its peers, which is not justifiable, in our view, given the quality of its balance sheet and outlook.
Erste Group Research – Sector Report
Page 19
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cinema City | Media | Netherlands 25 September 2013
Investment story Leader in CEE, ambitious rollout plan
Cinema City International is the largest theater operator in CEE. It has become the leading cinema operator in Poland, Hungary, the Czech Republic, Slovakia, Romania, Bulgaria and Israel. CCI currently operates 974 screens in 100 locations. In July 2012, CCI opened its 24-screen megaplex flagship project, Yes Planet, in Rishon LeZion, Israel, which increased the screen fleet by some 3%. The next megaplex is also to be developed in Israel. The work started in February 2013 and the opening is planned for 2015. CCI has an ambitious roll-out plan, with an additional 340 screens (+35%) in 31 locations (63% in Romania). We expect 189 screens (+19.5%) to be added during 2013-16, of which 53% are to be opened in Romania, 23% in Israel, 16% in Bulgaria and 8% in Poland.
CEE cinema market underpenetrated… real convergence to come
CCI’s markets are underpenetrated in terms of yearly admissions per capita as well as the population per screen ratio. Real convergence will be the growth trigger in the LT. In Romania (for example), yearly admissions per capita are just 0.3, vs. 1.6 in Germany and 4.1 in the US, which brings huge LT potential. In terms of population per screen, the story is similar (106tsd inhabitants per screen in Romania vs. 17tsd in Germany). For average yearly admissions and the number of inhabitants per screen in CCI’s markets and in developed Europe and US, see details in the graphs below. Yearly admissions, GDP per capita (EUR) 4.5
4.1
4.0
35,000 3.3
3.5
GDP/capita (EUR)
30,000
3.0
25,000 2.0
20,000
2.5
2.0
1.8
2.0
1.6
15,000
CCI’s markets 1.0
10,000
1.0 0.8
0.7
0.6
5,000
1.5
1.0
1.0
0.3
0.5
US
France
Austria
Spain
Italy
Germany
Czech
Poland
Hungary
Bulgaria
Romania
GDP per capita
Croatia
0.0
Slovakia
0
Yearly admissions per capita / year
40,000
Yearly admissions per capita
Population per screen (tsd), GDP per capita (EUR) 120 106
GDP/capita (EUR)
35,000
100
30,000
CCI’s markets 80
25,000 20,000
60 51
15,000
40 32
10,000
23
22
5,000
17
15
20
15
14
11
12
Population per screen (ths)
40,000
7
GDP per capita
US
France
Austria
Spain
Italy
Germany
Czech
Slovakia
Hungary
Poland
Bulgaria
0
Romania
0
Population per screen (ths)
Source: Erste Group estimates, Factset, IMF Erste Group Research – Sector Report
Page 20
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cinema City | Media | Netherlands 25 September 2013 Acquisition of real estate assets from ITI
Cinema City purchased ITI non-core real estate assets valued at EUR 143.8mn from its parent company. More detailed information on the acquired assets can be seen in the table below. Acquired assets from parent company Country
Asset
Short description
NAV (EUR mn)*
Bulgaria
Mall of Rousse
shopping centre
66.0
Stara Zagora
plot
5.0
Park Tower, Sofia
plot
4.0
Hertzliya
office building
11.5
Gat, Haifa
post cinema building
0.6
Rav Chen, Tel Aviv
cinema in operation
4.6
Gat, Tel Aviv
cinema in operation
2.0
Rishon Lezion
post cinema building
1.25
Oasis, Tel Aviv
post cinema building
1.0
Israel
Poland
Park of Poland
land for theme park 32.11% stake in resid. g developer company
Ronson Europe Total Source: CCI, *NAV according to CCI
14.8 33.1 143.9
Separately, CCI agreed to hold a 50% general partnership with Dori Group to sign a PLN 29.2mn deal to buy 15.3% in real estate firm Ronson Europe from a GE Capital unit. As a consequence, CCI’s stake in Ronson will increase to 39.8%. The transaction is expected to be closed in November 2013. Why has CCI bought non-core assets?
Why has CCI bought these non-core assets? We still have not found a meaningful answer, excluding the fact that its mother company would like to divest them without any discount. Note that real estate companies in CEE are traded at 50-90% of NAV and standalone sales of particular assets are still a little difficult these days, given the real estate market situation (also, these assets are usually sold with a discount to NAV). The P/NAV comparison of CEE developers can be seen in the table below. P/NAV comparison (Erste real estate universe) Name CA IMMO conwert GTC Immofinanz LEG Immobilien Orco S Immo
P/NAV 2012
P/NAV 2013e
P/NAV 2014e
0.53 0.74 0.90 0.50 0.91 0.50 0.61
0.48 0.64 0.69 0.56 0.95 0.60 0.56
0.50 0.63 0.69 0.53 0.91 0.58 0.53
Median CEE 0.61 Source: Erste Group estimates, Factset
0.60
0.58
We have applied a 0.6x multiple to the acquired assets (CEE median P/NAV 2013e). As a consequence, the ‘market value’ of the acquired assets is EUR 105.4mn (the 32.11% + 7.7% stake in Ronson was not multiplied by 0.6x, as the stake was already acquired with a discount). Obviously, if the situation on the real estate market improves significantly (mainly in SEE), the valuation of these assets will go up (or at least the discount to NAV will disappear) and CCI could benefit. For the time being, we used the ‘market value prices’ of these assets in our DCF valuation (for the contribution of non-core assets in the DCF table). Erste Group Research – Sector Report
Page 21
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cinema City | Media | Netherlands 25 September 2013 What would CCI like to do with these assets? Exit strategy?
CCI has already announced its exit strategy for these assets. CCI would like to sell the entire stake in the Mall of Rousse, excluding the multiplex, in a recovered real estate market in Bulgaria (target divestment price of EUR 8085mn). In the case of the 39.8% stake in Ronson (32.1% bought from ITI by the end of 2012 and 7.7% purchased for PLN 14.6mn in July 2013), CCI does not intend to sell the stake now. The market value of the stake is close to EUR 39mn (at EURPLN 4.22). In the case of Park of Poland, CCI sees two scenarios: external third party financing; potential operation or sale of land and exit from the project. In the case of other assets, CCI would like to sell if there are any meaningful offers. We see a relatively low probability of any significant sales before 2015 if CCI intends to sell these assets at a premium to the current valuation.
Solid 2Q13 figures; we expect weaker 2H, due to base effect
Real estate acquisition, organic growth and significantly lower than expected depreciation were behind the strong operating performance in 2Q13. The total number of tickets sold reached 8.15mn (up 7.0% y/y); nevertheless, excluding new openings were down by 0.7% y/y to 7.57mn. As a consequence, theater operation revenues were up 10.6% y/y to EUR 58.8mn, distribution revenues were down 8.1% y/y to EUR 4.7mn and real estate added EUR 1.6mn, up 305% y/y (positive impact of recent real estate acquisition). The operating margin increased to 8.7% vs. 5.1% in 2Q12, mainly due to the acquisition of real estate (operating margin at 68.6%). Operating margin in the core theatre business increased to 5.9% from 4.1% in 2Q12 (operating leverage and renegotiation of lease agreements for its ex Palace Cinemas multiplexes). In 2H13, we expect a mild slowdown to 7.7% y/y, mainly due to the high base effect. Consolidated, IFRS Reported (EUR mn)
Expected
Reported
2Q 13a
2Q 12
y/y
Erste
Cons.
vs. Erste
vs. Cons.
Revenue
65.1
58.6
11.0%
66.2
64.4
-1.7%
1.0%
EBITDA
13.2
10.8
22.4%
12.9
12.9
2.5%
2.6%
5.7
3.0
89.9%
4.2
4.6
35.6%
22.8%
27.7%
28.0%
9.5%
EBIT Net earnings
2.6
2.1
2.1
2.4
20.3%
18.4%
6.3%
7.1%
Operating margin
8.7%
5.1%
6.3%
7.1%
Net margin
4.0%
3.5%
3.1%
3.7%
EBITDA margin
Source: CCI, Bloomberg, PAP, Erste Group Research;
Change in estimates Slightly lower depreciation behind mild improvement of operating performance
The table below illustrates key financial and operating figures in comparison to our previous report. We show improved operating performance in 201315, as the company is able to benefit from the current weak real estate market and renegotiate the vast majority of its lease agreements at reasonably better conditions (see more below). Change in estimates Consolidated, IFRS (PLN, mn)
2013e Now Before Change
Revenues 308.2 EBITDA 69.1 EBIT 37.4 Net profit 25.8 Source: Erste Group Research
308.3 69.5 35.2 24.8
0.0% -0.6% 6.2% 4.2%
2014e Now Before Change 331.9 74.5 41.6 30.2
333.1 73.8 38.1 28.1
-0.4% 0.9% 9.3% 7.6%
Erste Group Research – Sector Report
2015e Now Before Change 359.3 80.5 46.3 35.1
361.0 79.7 43.5 33.6
Page 22
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-0.5% 1.0% 6.3% 4.6%
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cinema City | Media | Netherlands 25 September 2013 EBITDA to grow by CAGR of 5.6% in 2013-17; dividends postponed, due to real estate acquisition and new openings in 2014
CCI continues to increase its screen fleet. On top of that, CCI has never paid out a dividend from its profit. We expect new openings to decelerate in 2013 and in 1H14 (mainly in southeastern Europe), but the strong pipeline of new openings, with up to an additional 100 screens in 2H14-15 (up 10%), will limit dividend capacity. We expect the first dividend to be paid out from 2015 profit (EUR 0.34/share or PLN 1.45/share, assuming a 50% PoR). We expect EBITDA to grow by a CAGR of 6.0% in 2013-17, while revenues are expected to grow even faster (at 6.3% in the same period). Earnings development (2007-15e) 90.0
24% 81.1
80.0
75.0 22.6%
69.1
70.0 60.2 60.0
21.5%
21.7%
53.1
53.4
22.5%
22.4%
23%
22.4% 22%
21.5%
50.0 21%
41.0 40.0
35.8
33.9
35.2
20.0%
30.3
29.7
30.0
25.2 16.7
20.0
24.8
20%
25.8
20.9
18.3 19.0%
19%
10.0 0.0
18% 2007
2008
EBITDA
net profit
2009
2010
2011
2012
2013e
2014e
2015e
EBITDA margin
Source: CCI, Erste Group research
Risks and triggers The main risks and concerns regarding investing in Cinema City can be summarized as follows: Risks:
Relatively limited barriers to entry, which could lead to margin deterioration in LT. Lower than expected pace of shopping mall development in Romania. Slowdown in real estate market (slower expansion). Renegotiation of lease arrangements at commercially reasonable terms (CCI does not own theaters it operates). Potentially expensive acquisitions, even in non-core segment.
Triggers: Focus on CEE region, with good prospects (in LT). Cinema ticket sales not sensitive to slowdown (dependent on movie pipeline). Well-developed chain of modern movie theaters. Expansion strategy. Still relatively low penetration of multiplexes in CEE compared to WE (convergence story).
DCF valuation, target price at PLN 34.0/share
We maintain our skepticism towards the new Cinema City screen openings, mainly on the Romanian market (Cinema City plans to open 215 screens in Romania, 63% of its new additions), as the situation on the Romanian real estate market is relatively tough and most developers have troubled access to financing for development. On the other hand, the improved operating performance as well as potential further margin improvement emerging from the 4DX theater wave should have a positive impact on our target price. The equity value of the company was calculated at EUR 406.1mn, yielding a 12M target price of PLN 34.0/share and an Accumulate recommendation.
Erste Group Research – Sector Report
Page 23
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cinema City | Media | Netherlands 25 September 2013 WACC calculation 2014e
2015e
2016e
2017e
2018e
Term. value Normalized
Risk free rate Equity risk premium Beta Cost of equity
4.5% 6.0% 0.6 8.1%
4.5% 6.0% 0.6 8.1%
4.5% 6.0% 0.6 8.1%
4.5% 6.0% 0.6 8.1%
4.5% 6.0% 0.6 8.1%
5.0% 5.7% 1.0 10.7%
Cost of debt Effective tax rate After-tax cost of debt
6.0% 9.0% 5.5%
6.0% 9.0% 5.5%
6.0% 9.0% 5.5%
6.0% 9.0% 5.5%
6.0% 9.0% 5.5%
6.5% 19.0% 5.3%
Equity weight WACC
50% 6.8%
50% 6.8%
50% 6.8%
50% 6.8%
50% 6.8%
65% 8.8%
(PLN mn)
2014e
2015e
2016e
2017e
2018e
Normalized
Sales growth EBIT EBIT margin Tax rate Taxes on EBIT NOPLAT
7.7% 39.4 11.9% 9.0% -3.5 35.9
8.3% 44.0 12.2% 9.0% -4.0 40.0
5.7% 47.0 12.4% 9.0% -4.2 42.8
3.3% 49.0 12.5% 9.0% -4.4 44.6
3.3% 51.7 12.8% 9.0% -4.6 47.0
2.0% 49.6 12.0% 19.0% -9.4 40.2
32.8 169.5% -2.3 -9.6% -55.6
34.3 196.0% -2.6 -9.6% -67.2
35.1 152.4% -2.0 -9.8% -53.5
35.4 133.3% -1.2 -9.8% -47.2
35.1 110.7% -1.3 -9.8% -38.8
36.1 104.0% -0.3 -4.0% -37.6
10.8
4.5
22.4
31.5
42.0
38.4
30.2
1.5% 534.0 384.7
Terminal value EBIT margin 11.5% 12.0% 12.5% 37.5 39.2 40.8 34.9 36.4 37.9 32.6 34.0 35.5 30.7 32.0 33.3 28.9 30.2 31.4
13.0% 42.4 39.4 36.9 34.6 32.6
DCF valuation
+ Depreciation Capital expenditures / Depreciation +/- Change in working capital Chg. working capital / chg. Sales - Capital expenditures Free cash flow to the firm Terminal value growth Terminal value Discounted free cash flow - Dec 31 2013 Enterprise value - Dec 31 2013
10.1 471.6
Minorities Non-operating assets Net debt Other adjustments Equity value - Dec 31 2013
0.0 105.5 170.9 0.0 406.1
Number of shares outstanding (mn) Cost of equity 12M target price per share (EUR) 12M target price per share (PLN)
51.2 8.1% 8.1 34.0
Current share price (PLN) Up/Downside
31.0 10%
PV of detailed period 33%
WAC WACC
PV of terminal value 67%
18.4
24.2
Sensitivity (per share)
WAC WACC C
Enterprise value breakdown
3.9
8 7.8% 8.3% 8.8% 9.3% 9.8%
11.0% 35.9 33.4 31.2 29.4 27.7
0 7.8% 8.3% 8.8% 9.3% 9.8%
0.5% 33.7 31.7 29.9 28.3 26.9
Terminal value growth 1.0% 1.5% 36.3 39.2 33.9 36.4 31.8 34.0 30.0 32.0 28.4 30.2
2.0% 42.6 39.4 36.6 34.2 32.1
2.5% 46.7 42.8 39.5 36.8 34.4
Source: Erste Group estimates Erste Group Research – Sector Report
Page 24
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cinema City | Media | Netherlands 25 September 2013 Income Statement (IAS, EUR mn, 31/12)
Net sales Cost of goods sold Gross profit SG&A Other operating revenues Other operating expenses EBITDA Depreciation/amortization EBIT Financial result Extraordinary result EBT Income taxes Result from discontinued operations Minorities and cost of hybrid capital Net result after minorities
Balance Sheet
2010
2011
2012
2013e
2014e
2015e
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
234.55 -168.74 65.81 -32.50 91.21 -88.17 56.17 -19.82 36.35 -2.28 0.00 34.07 -4.04 0.02 -0.36 29.69
267.46 -200.25 67.21 -39.21 0.00 -3.28 50.15 -25.42 24.73 -3.64 0.00 21.09 0.29 0.00 -0.45 20.93
280.65 -206.09 74.56 -44.90 0.00 0.00 60.21 -30.56 29.66 -2.85 0.00 26.81 -1.78 0.00 -0.25 24.78
308.22 -221.53 86.68 -49.31 0.00 0.00 69.06 -31.69 37.37 -9.07 0.00 28.30 -2.46 0.00 0.00 25.84
331.90 -239.02 92.88 -51.24 0.00 0.00 74.46 -32.83 41.64 -8.43 0.00 33.21 -2.97 0.00 0.00 30.24
359.29 -259.55 99.74 -53.48 0.00 0.00 80.54 -34.28 46.26 -7.67 0.00 38.59 -3.45 0.00 0.00 35.14
2010
2011
2012
2013e
2014e
2015e
0.80 231.76 2.03 234.59 4.66 30.35 11.55 10.86 57.41 292.00 221.73 -4.96 0.00 0.00 7.14 20.28 3.30 23.58 12.11 32.40 31.17 292.00
13.16 263.92 17.24 294.32 6.65 16.41 12.59 9.62 45.26 339.58 229.30 -2.07 0.00 0.00 2.63 37.57 4.42 41.99 30.33 38.06 55.85 340.24
18.36 341.29 122.69 482.34 4.54 20.42 8.38 26.67 60.01 542.34 257.67 1.36 0.00 0.00 0.00 205.01 6.93 211.93 22.74 48.64 74.46 542.35
19.69 341.40 122.14 483.23 4.88 22.42 9.20 13.87 50.38 533.61 283.51 1.36 0.00 0.00 0.00 166.32 7.61 173.93 18.45 56.36 74.81 533.61
19.60 362.83 122.33 504.75 5.27 24.14 9.91 14.94 54.26 559.01 313.75 1.36 0.00 0.00 0.00 157.51 8.19 165.70 17.47 60.73 78.20 559.01
20.78 394.55 122.54 537.87 5.72 26.14 10.73 16.17 58.75 596.62 348.89 1.36 0.00 0.00 0.00 154.55 8.87 163.42 17.15 65.82 82.96 596.62
2010
2011
2012
2013e
2014e
2015e
53.05 12.26 -82.70 -11.77
46.03 -75.07 28.88 -1.24
62.23 -87.74 42.35 17.05
70.92 -29.56 -54.84 -12.79
75.27 -55.19 -21.07 1.07
81.34 -66.78 -14.00 1.23
2010
2011
2012
2013e
2014e
2015e
24.4% 23.9% 15.5% 12.8% 14.6% 12.0% 74.2% 21.5 14.7 248.8 34.6
14.0% 18.7% 9.2% 8.0% 9.3% 9.3% 66.8% 58.3 -23.2 292.6 35.4
4.9% 21.5% 10.6% 8.9% 10.2% 7.5% 47.8% 201.1 -22.8 467.0 36.8
9.8% 22.4% 12.1% 8.4% 9.5% 7.8% 53.4% 170.9 -33.6 463.4 47.0
7.7% 22.4% 12.5% 9.1% 10.1% 8.5% 56.4% 160.0 -33.9 483.3 47.1
8.3% 22.4% 12.9% 9.8% 10.6% 8.9% 58.7% 155.5 -34.9 514.6 47.2
(IAS, EUR mn, 31/12)
Intangible assets Tangible assets Financial assets Total fixed assets Inventories Receivables and other current assets Other assets Cash and cash equivalents Total current assets TOTAL ASSETS Shareholders'equity Minorities Hybrid capital and other reserves Pension and other LT personnel accruals LT provisions Interest-bearing LT debts Other LT liabilities Total long-term liabilities Interest-bearing ST debts Other ST liabilities Total short-term liabilities TOTAL LIAB. , EQUITY
Cash Flow Statement (IAS,EUR mn, 31/12)
Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities CHANGE IN CASH , CASH EQU.
Margins & Ratios Sales growth EBITDA margin EBIT margin Net profit margin ROE ROCE Equity ratio Net debt Working capital Capital employed Inventory turnover Source: Company data, Erste Group estimates
Erste Group Research – Sector Report
Page 25
All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013
CME from Accumulate to Reduce
All pric es are thos e c urrent at the end of the previ ous tr adi ng session unl ess other wise indicated and ar e s ourc ed fr om loc al exc hanges vi a Reuters, Bl oomberg and other vendors .
Erste Gr oup R es earc h – C ompany R eport CME | Media | Cz ech Republic 24 September 2013
TEST
USD mn 2012 2013e Net sales 772.1 690.4 EBITDA -399.8 48.0 EBIT -488.2 -11.7 Net result after min. -535.7 -89.8 EPS (USD) -2.39 -0.40 CEPS (USD) -1.99 -0.13 BVPS (USD) 2.79 4.02 Div./share (USD) 0.00 0.00 EV/EBITDA (x) -6.2 41.7 P/E (x) nm nm P/CE (x) -3.1 -39.2 Dividend Yield 0.0% 0.0% Share price (USD) close as of 23/09/2013 Number of shares (mn) Market capitalization (USD mn / EUR mn) Enterprise value (USD mn / EUR mn)
2014e 777.8 134.9 76.4 9.8 0.04 0.30 4.06 0.00 14.8 119.9 17.3 0.0%
2015e 821.4 167.3 109.4 44.4 0.20 0.46 4.26 0.00 11.6 26.5 11.5 0.0% 5.26 224.1 1,179 / 873 2,005 / 1,486
52 weeks
9 8 7 6 5 4 3 2
Performance in USD
CME
PX
12M
6M
3M
1M
-29.6%
13.6%
52.5%
13.6%
Reuters CETV.O Free float 47.6% Bloomberg CETV CP Shareholders Time Warner (49.9%) Div. Ex-date Ronald S. Lauder (2.5%) Target price 5.00 Homepage: www.cetv-net.com
Stronger after SPO, but stock price is unrealistic Recommendation: Since our last report, there have been no significant changes to our model, while we have only fine-tuned the 2013-15 financials. We are increasing our target price from USD 4.0 to USD 5.0, while downgrading our recommendation from Accumulate to Reduce. CME stock has added more than 45% since our last report and we simply believe that the current share price has risen too far, too fast.
Analyst: Vaclav Kminek +420 224 995 289
[email protected]
SPO: CME finalized a USD 153mn equity offering (49.9% allotted to TW at USD 2.75/share). Moreover, TW bought USD 200mn Convertible Preferred Shares. The majority of the proceeds were used to repurchase almost half of the 2016 Notes. CME will save up to USD 33mn in interest costs (30%) and will thus turn FCF-positive in 2014. The improved balance sheet will enable the company to roll over 2017 Notes at significantly lower interest rates. Financials: Despite the fact that the first signs of a mild improvement are emerging mainly from SEE markets (revenues were up there by 2-4% y/y in 2Q13) and the big advertisers have started to return in the Czech Republic, the full-year OIBDA outlook at USD 50-70mn is hardly achievable, in our view. Valuation: CME is traded at EV/EBITDA2015 of 14.8 and P/E2015 of 120, respectively some 42% and 92% above its peers, which is not justifiable, in our view.
Erste Group Research – Sector Report
Page 26
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013
Investment case - SPO dramatically changed CME’s story USD 353mm fresh capital injection to significantly improve balance sheet
CME issued new shares for a total of USD 353.0mn, of which USD 153mn of Class A common shares, and TW bought USD 200mn Convertible Preferred Shares.
USD 300mn to be used for 11.625% 2016 Notes repayment, annual savings at least USD 33mn (30% of interest costs)
The majority of the proceeds (USD 300mn) were used for repurchasing and redeeming a portion of its 11.625% 2016 Notes (approx. USD 284mn of principal amount plus a premium of approx. USD 16mn); the remaining proceeds (approx. USD 53mn) shall be used for general corporate purposes. As a consequence, CME will save annually at least USD 33mn of interest costs (some 30% of total interest costs). The share issue significantly reduces CME’s leverage (net debt/OIBDA 2014 declined to 6.0, down from 8.3 prior to the offering).
Improved balance sheet enables additional savings; total interest cost savings at USD 58mn (50% of total interest costs)
The improved quality of the balance sheet will allow the company to refinance the 9% EUR 240mn (USD 312mn) 2017 Notes (these Notes are callable in November 2014). This could add USD 25mn in annual savings (assuming a 6.2% yield on the new Notes). CME in total could save up to USD 58mn annually as of 2014 (50.4% of its interest costs).
TW to take over CME as result of Series B Share conversion – 3Y horizon
CME issued USD 200mn in Series B Convertible Redeemable Preferred Stock to Time Warner. The conversion price will be USD 3.1625/share (a 15% premium to the offering price). Since the conversion, the stated value of the Series B shares will accrete at an annual rate of 7.5% (first 3Y) and at 3.75% (from 4-5Y). CME has the right to redeem the Series B Preferred Shares in whole or in part from the third anniversary of the date of issuance. The potential issue of new shares at a higher price and redeeming Series B shares represent upside for our target price. We expect conversion in a 3Y horizon, while we assume that the 7.5% interest will be capitalized. The total converted amount shall be around USD 248.45mn. As a consequence, the conversion will increase TW’s stake by an additional 78.56mn Class A shares, which will increase its economic interest in CME to approx. 67.5%. See more in the table below.
Shareholder structure after SPO
Shareholder structure after SPO and conversion of Series B Shares Total number of Class A shares Time Warner* Mr. Lauder Other
72.62 5.02 67.89
Economic interest 49.9% 3.4% 46.7%
Converted Series B shares 78.56 0.00 0.00
Total number of shares 151.18 5.02 67.89
Economic interest 67.5% 2.2% 30.3%
Total 145.53 100.0% 78.56 224.09 100.0% Source: CME, Erste Group estimates * Compounded with conversion of single share of Series A Convertible Proffered Stock into 11.211mn shares of Class A
Significantly improved debt maturity profile
CME’s maturity profile has improved significantly. CME has nothing to pay prior to November 2015. See more in the graph below.
Erste Group Research – Sector Report All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
Page 27
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013 Maturity profile prior to and after recent offering: Maturity profile prior offering 700
Maturity profile after offering 700
622
600
600
500
500
400
312 261
300
400
338
200
200
100
100
0
312
261
300
0 2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Source: CME, Erste Group estimates
Interest costs to fall sharply – potential 50% savings
Interest costs prior to share issue, after offering and after potential refinancing of remaining Notes The repayment of USD 284mn of 11.625% 2016 Notes decreased interest by USD 33mn (annually). The improved balance sheet (net debt close to USD 0.8bn at YE13) could allow the company to restructure the remaining part of 2016 Notes as well as 9% of 2017 Notes at significantly lower interest rates (2017 Notes are callable in November 2014). We can imagine a 6-6.5 % yield on the new Notes (the Notes are backed by strong major shareholder Time Warner, which reduces the risk premium). See more in the chart below. Interest costs prior to SPO (first column), after SPO (second) and after potential restructuring (third), in USD mn 120 105
28.1
90 75 28.1
60 72.3
45
39.3
30
56.5
15 13.1
13.1
0 2015 notes (5%)
2016 notes (11.6%)
2017 notes (9%)
New notes (6.2% yield)
Source: CME, Erste Group estimates
Market leader in each market in which it operates, problems in Czech Republic
We have already seen the first signs of stabilization in the middle of 2013; the market is normalizing after a period of high nervousness and short-term purchasing. It is obvious that the market is continuously gaining confidence and returning to professional normalized planning cycles. The move from complete uncertainty and nervousness is changing into regular operating mode, a more confident approach leading to committing for longer times than just the next couple weeks. The recovery across the CEE region should come in 2014-15, while mild improvement will most likely be visible
Erste Group Research – Sector Report
Page 28
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013 already in late 2H13 (there is still a decline in the majority of CEE markets, but at a slower pace y/y). See more details in the graph below. TV ad market development in 2011 – 2014e (nominal) 11.0% 9.0% 6.9%
7.0% 5.0%
4.7%
4.3%
3.9%
3.7%
2.1%
2.5% 1.6%
0.7%
1.0% -1.0%
3.2%
2.9%
3.0%
CZE
ROM
BUL
SVK
-0.7%
SLO
POL
-5.0%
-4.5% -5.4%
-7.0%
-4.6% -4.8%
CRO -1.6%
-3.0% -4.8% -5.5%
-4.9%
-5.8%
-5.2%
-6.9%
-7.4%
-7.3%
-9.0%
-8.3%
-11.0%
-10.3%
-10.7%
2011
2012
2013e
2014e
Source: CME, Erste Group estimates
CME already started to cut GRP prices on Czech market, advertisers have started to return
The Czech market is still suffering from CME’s strategy to significantly increase prices. Other players are fully sold, while CME’s ad traffic has been hit painfully (on the other hand, the audience share has been well above 40% for the last couple of months). This has burdened the 1H13 figures on the key Czech market. TV ad revenues were down 39% y/y, while CME booked a USD 6.5mn loss on the OIBDA level (vs. USD 54.7mn profit in 1H12) in the Czech Republic. CME has already started with discounts, which are fully visible in the June monthly offer (partly visible already in May); during the summer, discounts narrowed a little bit (see more in table below).
Seasonally-adjusted GRP prices, premium/discount to annual offer Seasonally-adjusted
January* February March April* May June July August September
Super Prime Off prime Seasonal Time peak time multiple 16439 8800 36327 0.55 17379 11379 27807 0.58 16462 12217 18868 1.06 13894 9705 19479 1.25 12756 9626 17894 1.27 11481 8361 16074 1.08 13167 9217 19750 0.6 12097 8548 18226 0.62 13364 9355 18709 1.1
Premium/discount to annual sales prices (seasonally-adjusted) Prime Off Super prime Time peak time 13.4% (24.1%) 85.6% 19.9% 13.5% (4.2%) (12.0%)
(1.9%) 5.3% (16.3%) (17.0%)
42.1% (3.6%) (0.5%) (8.6%)
(20.8%) (9.2%) (16.6%) (7.8%)
(27.9%) (20.5%) (26.3%) (19.4%)
(17.9%) 0.9% (6.9%) (4.4%)
Source: CME, Erste Group calculation; * January and April prices adjusted for 600+GRP's; calculated with CZK 8+mn monthly spending
2Q13 results snapshot – below estimates
CME released 2Q13 results that were slightly below our estimates and the market consensus. Revenues (-14.7% y/y) were pulled down by its strategy to significantly increase prices in the Czech Republic (revenues -40.3% y/y there), while OIBDA in the Czech market sank to almost zero (USD 0.17mn vs. USD 31.4mn in 2Q12). The aggressive pricing policy in its key market the Czech Republic had a strongly negative impact on the headline figures
Erste Group Research – Sector Report
Page 29
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013 in 2Q13. On the other hand, we also see positive signs emerging mainly from SEE markets (revenues were up there by 2-4% y/y). Consolidated, IFRS (USD mn) Net revenue OIBDA EBIT Net profit EBITDA margin Net margin
2Q13a 180.2 7.0 -5.7 -41.1 3.9% -22.8%
2Q12 211.2 47.2 23.7 4.0 22.3% 1.9%
y/y -14.7% -85.0% -124.0% -1138.6%
Expected Erste 184.0 13.6 -6.1 -45.1 7.4% -24.5%
Cons 182.7 13.6 -3.9 -25.2 7.4% -13.8%
vs. Erste
vs. Cons.
-2.0%
-1.3%
-48.3%
-48.2%
7.3%
-45.4%
9.0%
-63.0%
Source: CME, Erste Group Research
Mainly as a consequence of advertisers’ resistance in the Czech Republic, CME lowered its FY13 revenue outlook to USD 700-720mn, from the previous USD 750-770mn, and its OIBDA outlook to USD 50-70mn, from the previous USD 100-120mn. This is below our original OIBDA estimate of USD 96mn, due to the later than assumed comeback of advertisers in the Czech Republic, but does not affect our outlook for 2014. CME actually expects revenues to be in an almost flat range y/y and OIBDA in the range from -0.9% y/y to +30.2% y/y in 2H13. This corresponds with a single-digit price increase across the markets and still lower sell-out in the Czech Republic. 2013 down significantly, 20142015 only fine-tuned
We include changes in our forecasts for 2013 through to 2015. The advertisers’ return in the Czech Republic lags behind our estimates, which negatively weighs on CME’s financials. Moreover, the one-off severance payment for former CEO Sarbu of some USD 5.2mn will negatively affect the operating performance in 2013. Figures for 2014-15 are almost unchanged. More detailed changes to our estimates can be seen in the table below. Change in estimates: Consolidated, IFRS (USD, mn) Revenues EBITDA EBIT Net profit Source: Erste Group Research
2013e Now Before 690.4 48.0 -11.7 -89.8
725.3 96.8 20.4 -57.5
Change -4.8% -50.4% -157.3% 56.2%
2014e Now Before 777.8 134.9 76.4 9.8
791.1 134.0 60.1 -0.4
Change -1.7% 0.7% 27.2% n.m.
Erste Group Research – Sector Report
2015e Now Before 821.4 167.3 109.4 44.4
Page 30
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Change
837.3 169.1 99.6 42.7
-1.9% -1.0% 9.8% 4.1%
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013
Risks and triggers The company’s major pros can be summarized as follows:
Leader in all markets in which it operates, with high pricing power Ad spending per capita well below WE levels, leaving path for convergence TW synergies in programming (content, new channels, scripts), possible further capital increase from TW FTA digitalization opens way for more channels and use of CME’s vast film libraries Vertically-integrated company
Concerns about CME representing significant risks:
Still relatively high leverage (net debt close to USD 0.8bn after recent capital increase) Exposure to volatile markets of CEE region, which is also reflected in its share price fluctuation Currency fluctuations play important role, as most revenues come in local currencies High indebtedness is always present concern
DCF valuation Recommendation downgraded, target price up mildly
We employed a DCF model as our valuation tool, based on our forecasts for 2014-18. We used a discount rate based on WACC and a terminal value based on perpetuity and the number of shares after the SPO and conversion of Series B shares. The DCF model led us to a 12-month target price of USD 5.0 per share, which means a Reduce recommendation, given the current share price. See more in the table below.
Erste Group Research – Sector Report
Page 31
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013 WACC calculation 2014e
2015e
2016e
2017e
2018e
Term. value Normalized
Risk free rate Equity risk premium Beta Cost of equity
2.5% 6.1% 1.7 12.8%
2.5% 6.1% 1.7 12.8%
2.5% 6.1% 1.7 12.8%
2.5% 6.1% 1.7 12.8%
2.5% 6.1% 1.7 12.8%
4.0% 5.8% 1.0 9.8%
Cost of debt Effective tax rate After-tax cost of debt
9.4% 19.0% 7.6%
6.5% 19.0% 5.3%
6.5% 19.0% 5.3%
6.5% 19.0% 5.3%
6.5% 19.0% 5.3%
6.0% 19.0% 4.9%
Equity weight WACC
60% 10.8%
60% 9.8%
60% 9.8%
60% 9.8%
60% 9.8%
65% 8.1%
(USD mn)
2014e
2015e
2016e
2017e
2018e
Normalized
Sales growth EBIT EBIT margin Tax rate Taxes on EBIT NOPLAT
12.7% 76.4 9.8% 19.0% -14.5 61.9
5.6% 109.4 13.3% 19.0% -20.8 88.6
7.3% 140.8 16.0% 19.0% -26.8 114.1
6.0% 159.6 17.1% 19.0% -30.3 129.3
5.9% 176.4 17.8% 19.0% -33.5 142.9
5.0% 187.0 18.0% 19.0% -35.5 151.5
+ Depreciation Capital expenditures / Depreciation +/- Change in working capital Chg. working capital / chg. Sales - Capital expenditures
58.4 91.2% 10.6 12.1% -53.3
58.0 77.1% 8.1 18.7% -44.7
56.8 100.4% 8.4 14.0% -57.0
58.0 98.4% 1.1 2.1% -57.1
59.3 95.6% -8.4 -15.1% -56.7
59.3 104.0% -1.5 -3.0% -61.7
77.6
110.0
122.2
131.3
137.1
147.6
85.1
2.0% 2,501.1 1,437.0
DCF valuation
Free cash flow to the firm Terminal value growth Terminal value Discounted free cash flow - Dec 31 2013 Enterprise value - Dec 31 2013
70.1 1,863.7
Minorities Non-operating assets Net debt - Dec 31 2013 Equity value - Dec 31 2013
0.0 0.0 821.3 1,042.4
Number of shares outstanding (mn) Cost of equity 12M target price per share (USD)
224.1 12.8% 5.0
Current share price (USD) Up/Downside
5.3 -5.1%
89.5
Sensitivity (per share) Terminal value EBIT margin 5
17.0%
17.5%
18.0%
18.5%
19.0%
WACC WAC C
PV of detailed period 23%
91.5
7.1% 7.6% 8.1% 8.6% 9.1%
6.0 5.2 4.6 4.1 3.6
6.2 5.4 4.8 4.3 3.8
6.4 5.7 5.0 4.4 4.0
6.7 5.9 5.2 4.6 4.1
6.9 6.1 5.4 4.8 4.3
WACC WAC
Enterprise value breakdown
90.5
5 7.1% 7.6% 8.1% 8.6% 9.1%
1.0% 5.0 4.4 4.0 3.5 3.2
2.5% 7.4 6.4 5.7 5.0 4.4
3.0% 8.6 7.4 6.4 5.7 5.0
PV of terminal value 77%
Terminal value growth 1.5% 2.0% 5.6 6.4 5.0 5.7 4.4 5.0 4.0 4.4 3.5 4.0
Source: Erste Group estimates, Total number of shares outstanding (224.1mn) calculated with conversion of Series B shares
Erste Group Research – Sector Report
Page 32
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report CME | Media | Czech Republic 25 September 2013 Income Statement (IAS, USD mn, 31/12)
Net sales Cost of goods sold Gross profit SG&A Other operating revenues Other operating expenses EBITDA Depreciation/amortization EBIT Financial result Extraordinary result EBT Income taxes Result from discontinued operations Minorities and cost of hybrid capital Net result after minorities
Balance Sheet
2010
2011
2012
2013e
2014e
2015e
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
737.13 -513.64 223.49 -119.82 0.00 3.64 107.32 -84.44 22.88 -134.78 0.00 -111.89 -5.03 213.70 3.40 100.18
864.78 -581.82 282.96 -119.59 0.00 3.63 167.00 -156.58 10.42 -182.55 0.00 -172.13 -3.85 0.00 4.99 -170.98
772.09 -553.16 218.93 -96.27 0.00 -522.49 -399.83 -88.36 -488.19 -72.34 0.00 -560.53 14.14 0.00 10.71 -535.68
690.40 -550.00 140.40 -92.37 0.00 0.00 48.03 -59.73 -11.69 -93.48 0.00 -105.17 9.99 0.00 5.36 -89.82
777.82 -554.58 223.23 -88.35 0.00 0.00 134.89 -58.44 76.44 -69.56 0.00 6.88 -1.34 0.00 4.29 9.83
821.39 -566.97 254.42 -87.07 0.00 0.00 167.35 -57.96 109.39 -58.11 0.00 51.28 -10.26 0.00 3.43 44.45
2010
2011
2012
2013e
2014e
2015e
2,045.80 282.67 0.00 2,328.47 80.21 287.83 0.00 244.05 612.09 2,940.55 1,226.88 20.87 0.00 0.00 0.00 1,346.22 103.50 1,449.72 13.56 229.51 243.08 2,940.55
1,899.61 243.88 0.00 2,143.48 101.74 250.16 0.00 186.39 538.29 2,681.77 1,001.69 16.25 0.00 0.00 0.00 1,370.53 83.88 1,454.42 -45.10 254.52 209.42 2,681.77
1,425.19 230.98 0.00 1,656.16 120.02 258.14 0.00 140.39 518.55 2,174.72 626.06 5.21 0.00 0.00 0.00 1,198.87 53.21 1,252.08 21.92 269.45 291.36 2,174.72
1,401.53 219.64 36.85 1,658.03 118.82 252.37 0.00 117.15 488.35 2,146.38 899.59 5.21 0.00 0.00 0.00 916.35 53.21 969.56 22.14 249.88 272.02 2,146.38
1,387.98 214.27 48.51 1,650.76 121.20 257.11 0.00 124.50 502.81 2,153.56 909.42 5.21 0.00 0.00 0.00 917.82 53.21 971.03 22.14 245.77 272.91 2,153.56
1,364.67 207.07 48.99 1,620.74 122.41 252.47 0.00 163.38 538.26 2,159.00 953.87 5.21 0.00 0.00 0.00 890.78 53.21 943.99 22.36 233.58 251.47 2,159.00
2010
2011
2012
2013e
2014e
2015e
212.59 -147.75 -563.88 -201.90
204.34 -76.53 -179.04 -57.66
401.00 -69.71 -111.22 -45.99
43.73 -51.96 -9.42 -23.24
125.26 -51.32 -65.27 7.34
169.76 -40.70 -96.43 38.88
(IAS, USD mn, 31/12)
Intangible assets Tangible assets Financial assets Total fixed assets Inventories Receivables and other current assets Other assets Cash and cash equivalents Total current assets TOTAL ASSETS Shareholders'equity Minorities Hybrid capital and other reserves Pension and other LT personnel accruals LT provisions Interest-bearing LT debts Other LT liabilities Total long-term liabilities Interest-bearing ST debts Other ST liabilities Total short-term liabilities TOTAL LIAB. , EQUITY
Cash Flow Statement (IAS,USD mn, 31/12)
Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities CHANGE IN CASH , CASH EQU.
Margins & Ratios Sales growth EBITDA margin EBIT margin Net profit margin ROE ROCE Equity ratio Net debt Working capital Capital employed Inventory turnover Source: Company data, Erste Group estimates
2010
2011
2012
2013e
2014e
2015e
3.2% 14.6% 3.1% -15.9% 8.4% 0.9% 42.4% 1,115.7 369.0 2,467.0 6.3
17.3% 19.3% 1.2% -20.3% -15.3% -0.6% 38.0% 1,139.0 328.9 2,240.9 6.4
-10.7% -51.8% -63.2% -70.8% -65.8% -21.1% 29.0% 1,080.4 227.2 1,764.9 5.0
-10.6% 7.0% -1.7% -13.8% -11.8% -0.3% 42.2% 821.3 216.3 1,779.3 4.6
12.7% 17.3% 9.8% 0.7% 1.1% 3.5% 42.5% 815.5 229.9 1,783.3 4.6
5.6% 20.4% 13.3% 5.0% 4.8% 4.9% 44.4% 749.8 286.8 1,762.0 4.7
Erste Group Research – Sector Report
Page 33
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cyfrowy Polsat | MEDIA | Poland 25 September 2013
Cyfrowy Polsat from Buy to Accumulate
All pric es are thos e c urrent at the end of the previ ous tr adi ng session unl ess other wise indicated and ar e s ourc ed fr om loc al exc hanges vi a Reuters, Bl oomberg and other vendors .
Erste Gr oup R es earc h – C ompany R eport Cyfrowy Polsat | MEDIA | Poland 24 September 2013
TEST
PLN mn 2012 2013e Net sales 2,778.2 2,882.4 EBITDA 1,032.2 1,019.0 EBIT 789.2 764.3 Net result after min. 598.3 520.7 EPS (PLN) 1.72 1.49 CEPS (PLN) 2.43 2.23 BVPS (PLN) 7.09 8.58 Div./share (PLN) 0.00 0.90 EV/EBITDA (x) 7.5 8.9 P/E (x) 9.6 14.3 P/CE (x) 6.7 9.6 Dividend Yield 0.0% 4.2% Share price (PLN) close as of 23/09/2013 Number of shares (mn) Market capitalization (PLN mn / EUR mn) Enterprise value (PLN mn / EUR mn)
2014e 2,964.3 1,076.9 815.0 589.2 1.69 2.44 9.38 1.01 8.2 12.6 8.7 4.8%
2015e 3,009.5 1,099.9 832.7 612.3 1.76 2.53 10.12 1.05 7.8 12.1 8.5 4.9% 21.3 348.3 7,433 / 1,759 9,071 / 2,147
52 weeks
23 22 21 20 19 18 17 16 15 14
Performance in PLN
Cyfrowy Polsat
WIG
12M
6M
3M
1M
47.2%
32.3%
12.3%
-0.4%
Reuters CPSM.WA Free float Bloomberg CPS PW Shareholders Div. Ex-date Target price 24.0 Homepage:
48.5% Pola Investm. (44.3%) www.cyfrowypolsat.pl
Well positioned to continue deleveraging Recommendation: We maintain our positive stance on Cyfrowy, despite the fact that the shares have added more than 45% since our last report. There have been no significant changes in our model, while we only finetuned the 2013-15 financials. As a consequence of slightly improved operating performance, we have increased our target price to PLN 24.0, while lowering our recommendation from Buy to Accumulate.
Analyst: Vaclav Kminek +420 224 995 289
[email protected]
Ad market: We expect the Polish ad market to be down 4.8% y/y this year, followed by 2.5% y/y growth next year. Acquisition: Cyfrowy agreed to buy Polskie Media, the broadcaster of channels TV4 and TV6, which will increase its audience share by some 3pp. Moreover, Cyfrowy’s market share gap to TVN (27% vs. 35%) is scheduled to close a little bit, as their audience share will be almost comparable. Deleveraging: Despite the fact that majority owner Mr. Solorz-Zak would like to significantly decrease the leverage of his companies (i.e. Polkomtel), we expect the return of dividends from 2013 profit, as the net debt to EBITDA has already sunk below the 2.0 hurdle. We can imagine a PLN 0.90/share dividend from 2013 profit (PoR at 60%), which yields a 4.3% dividend yield. Cyfrowy is a market leader in the cash-generative DTH segment and is fully on track to continue deleveraging itself. Valuation: Cyfrowy is traded at EV/EBITDA2014 of 8.2 and P/E2014 of 12.6, respectively, some 6% and 16% below its peers, which is not justifiable, in our view, given the quality of its balance sheet and outlook. Erste Group Research – Sector Report
Page 34
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cyfrowy Polsat | MEDIA | Poland 25 September 2013
Investment case Cyfrowy in good shape to reduce debt and deleverage, strengthening its position in free TV segment
Cyfrowy strengthened its position in the free TV segment when it agreed to buy Polskie Media, the broadcaster of channels TV4 and TV6 (purchase price close to PLN 99mn). It will increase its audience share by some 3pp. Cyfrowy, including the acquired TV4+TV6, had a combined all-day audience share of 23.4% in 1H13 vs. 23.1% in the case of TVN (in prime time, 24.9% vs. 28.9%). As a consequence, Cyfrowy’s market share gap to TVN (27% vs. 35%) is scheduled to close a little bit, which will help Cyfrowy outperform TVN. We expect the Polish ad market to be down by single digits this year (4.8% y/y), followed by 2.5% y/y growth next year. Cyfrowy seems to be in good shape to reduce debt, as it is the market leader in the cash-generative DTH segment. Moreover, Cyfrowy has already caught up to TVN in terms of audience share in the TV business (in all-day audience share, although this is not yet the case in terms of prime time share). Since our last report, there have been almost no significant changes in our model, while we only fine-tuned the 2013-15 financials and incorporated the Polskie Media (TV4+TV6) acquisition. We maintain positive on Cyfrowy, despite the fact that its shares have added more than 45% since our last report. As a consequence of the slightly improved operating performance, we have increased our target price to PLN 24.5, while lowering our recommendation from Buy to Accumulate.
Telewizja Polsat continues to catch up with TVN
TV Polsat continues to catch up with competitor TVN, heavily supported by the recent acquisition of the TV4+TV6 channels. Historical performance is in the graph below.
Polsat and TVN’s audience share (16-49, all day) 24%
22.8% 22.7%
22% 20%
18.5%
18% 16%
17.4%
23.7% 22.2% 22.4%
17.4% 16.8%
22.3%
21.7%
16.0% 16.3%
22.0%
24.0%
23.2%
16.1%
14.6%
14.7% 15.7%
14.8%
14.0%
7.2% 5.4%
5.4%
6% 4% 2%
23.6% 22.3%
16.4%
14% 12% 10% 8%
23.5% 21.9%
6.0%
5.9% 7.2%
4.2%2.2%
2008
5.0%
2.5%
2009
TVN Group TVN thematic channels TV4+TV6
8.3% 9.0%
2010
2011
3.4%
3.0%
2.8%
Polsat Group* Polsat main channel
9.8%
7.8%
5.7%
2.5%
9.1%
2012
1Q2013
3.6%
2Q2013
TVN main channel Polsat thematic channels*
Source: AGB Nielsen Audience Measurement, Cyfrowy; *including TV4 and TV6
Erste Group Research – Sector Report
Page 35
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cyfrowy Polsat | MEDIA | Poland 25 September 2013 2Q13 earnings review no surprise
Revenues were in line with market estimates, as was the cost side. Growth was driven by 3.4% y/y higher ARPU in the DTH segment, while revenues from the TV segment were down 2% y/y. EBITDA in the pay-TV segment was down 3% y/y as a consequence of one-off costs related to subsidies for sold equipment (related to the start of TV Mobilna). EBITDA in the free TV segment was down 7% y/y, mainly due to lower ad revenues. Excluding one-off costs related to the start of TV Mobilna, Cyfrowy presented relatively strong figures. Consolidated, IFRSReported (PLN mn)
Expected
Reported
2Q 13a
2Q 12
y/y
Erste
Cons.
vs. Erste
vs. Cons.
Revenue
735.9
713.8
3.1%
727.9
734.0
1.1%
0.3%
EBITDA
257.3
269.8
-4.6%
255.3
257.0
0.8%
0.1%
EBIT
195.0
213.1
-8.5%
194.6
195.0
0.2%
0.0%
80.7
99.5
-18.9%
88.5
86.0
-8.7%
-6.1%
Operating margin
26.5%
29.8%
26.7%
26.6%
Net margin
11.0%
13.9%
12.2%
11.7%
Net earnings
Source: CPS, Bloomberg, PAP, Erste Group Research;
Fine-tuning of 2013-15 financials; no major changes
The table below depicts key financial and operating figures in comparison to our previous report in September last year. Generally speaking, there are no major changes compared to our last report (see more below). Change in estimates Consolidated, IFRS (PLN, mn)
2013e Now Before
Revenues 2882.4 EBITDA 1019.0 EBIT 764.3 Net profit 520.7 Source: Erste Group Research
2843.0 977.2 756.7 536.8
Change 1.4% 4.3% 1.0% -3.0%
2014e Now Before Change 2964.3 1076.9 815.0 589.2
2929.7 1016.4 791.1 578.0
1.2% 6.0% 3.0% 1.9%
2015e Now Before Change 3009.5 1099.9 832.7 612.3
3142.7 995.6 838.3 569.5
-4.2% 10.5% -0.7% 7.5%
Risk and triggers We are primarily positive because of the following set of factors:
More than half of the revenue stream comes from subscriber fees, which is markedly less sensitive to the negative development of the economy. Strong cash-generative DTH segment enables it to reduce debt. Pay-TV and DTH leader, with 60% DTH market share. TV Polsat survived the economic downturn in good shape. One of the lowest ARPU levels leaves it room to catch up to its peers by offering better services (triple play offer - VoD, HD, phones). Telewizja Polsat beginning to become leader on the Polish TV market.
Risks and downsides of the company:
Cyfrowy, after the acquisition of TV Polsat and Polskie Media, will be more sensitive to TV ad market performance. The Polish pay-TV market is becoming saturated, while there is increased competition on the broadcasting market. Competitors offer a similar channel product mix, so price becomes the key competition tool, with negative impact on costs and ARPU in the LT.
Erste Group Research – Sector Report
Page 36
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cyfrowy Polsat | MEDIA | Poland 25 September 2013
Technological progress requires upgrades of receivers and other IT systems, which translates into need for CAPEX.
Triggers: Cyfrowy group could be an interesting acquisition target in the event that the majority owner is indeed in need of funds (similar situation as TVN). Cyfrowy, after the TV Polsat and Polskie Media acquisition, could benefit from ad market growth. Price of TV advertising is below EU levels and should converge in the long term. Mr. Solors-Zak bought Polkomtel, which could bring some synergies in ST/LT (at least access to Polkomtel’s subscriber base). Financials Strong cash-generation ability enables it to reduce leverage
The TV Polsat acquisition markedly increased the leverage of the group (see below); nevertheless, thanks to its cash-generative pay-TV segment, the company is capable of paying strong dividends. Despite the fact that majority owner Mr. Solorz-Zak would like to significantly decrease the leverage of his companies (i.e. Polkomtel), we expect the return of dividends from 2013 profit, as the net debt to EBITDA has already decreased below the 2.0 hurdle. We can imagine a PLN 0.96/share dividend from 2013 profit (PoR at 60%), which yields a 4.6% dividend yield. We expect a pay-out ratio at 60% of net profit, with a 2013e dividend yield of 4.3% and a 2014e dividend yield of 4.8%. Net debt, net debt/EBITDA forecast 2,450
2,500
4.00
3.33
2,200
3.50
2,011
3.00 1,638
1,600
2.50 1.95
1,300
1.61
2.00 1,058
1,000
1.50 0.98
700 400
758 0.69
-0.07
-0.02 -8
1.00
473 0.42
0.50
100 -200
Net Debt / EBITDA
Net Debt (in PLN mn)
1,900
0.00 2009 -24 net debt
2010
2011
2012
2013e
2014e
2015e
2016e
-0.50
net debt/EBITDA
Source: Erste Group Research & company data
DCF valuation Key model parameters unchanged
We have left the key parameters unchanged, while we have only fine-tuned the 2013-15 financials. The equity value of the company was calculated at PLN 7,918.0mn, yielding a 12M target price of PLN 24.0/share and an Accumulate recommendation.
Erste Group Research – Sector Report
Page 37
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cyfrowy Polsat | MEDIA | Poland 25 September 2013 WACC calculation 2014e
2015e
2016e
2017e
2018e
Term. value Normalized
Risk free rate Equity risk premium Beta Cost of equity
4.5% 6.0% 1.2 11.7%
4.5% 6.0% 1.2 11.7%
4.5% 6.0% 1.2 11.7%
4.5% 6.0% 1.2 11.7%
4.5% 6.0% 1.2 11.7%
5.0% 5.5% 1.0 10.5%
Cost of debt Effective tax rate After-tax cost of debt
5.5% 19.0% 4.5%
5.5% 19.0% 4.5%
5.5% 19.0% 4.5%
5.5% 19.0% 4.5%
5.5% 19.0% 4.5%
6.0% 19.0% 4.9%
50% 8.1%
50% 8.1%
50% 8.1%
50% 8.1%
50% 8.1%
60% 8.2%
(PLN mn)
2014e
2015e
2016e
2017e
2018e
Normalized
Sales growth EBIT EBIT margin Tax rate Taxes on EBIT NOPLAT
2.8% 815.0 27.5% 19.0% -154.8 660.1
1.5% 832.7 27.7% 19.0% -158.2 674.5
2.0% 848.5 27.6% 19.0% -161.2 687.3
2.0% 869.7 27.8% 19.0% -165.2 704.4
2.2% 899.0 28.1% 19.0% -170.8 728.2
2.0% 913.8 28.0% 19.0% -173.6 740.1
261.9 103.7% -1.9 -2.4% -271.6
267.3 103.5% 1.3 2.8% -276.6
271.4 103.3% 0.0 -0.1% -280.3
275.4 103.0% 0.1 0.2% -283.6
278.5 103.0% -0.3 -0.5% -286.8
278.5 104.0% -2.6 -4.0% -289.6
648.5
666.4
678.3
696.3
719.5
726.4
487.9
1.5% 10,933.3 6,849.7
Equity weight WACC
DCF valuation
+ Depreciation Capital expenditures / Depreciation +/- Change in working capital Chg. working capital / chg. Sales - Capital expenditures Free cash flow to the firm Terminal value growth Terminal value Discounted free cash flow - Dec 31 2013 Enterprise value - Dec 31 2013
600.0 9,555.8
Minorities Non-operating assets Net debt Other adjustments Equity value - Dec 31 2013
0.0 0.0 1,637.8 0.0 7,918.0
Number of shares outstanding (mn) Cost of equity 12M target price per share (PLN)
348.3 11.7% 24.0
Current share price (PLN) Up/Downside
21.3 12.6%
Enterprise value breakdown
570.5
537.3
510.3
Sensitivity (per share)
WACC
PV of terminal value 72%
WAC WACC C
Terminal value EBIT margin PV of detailed period 28%
24
26.0%
27.0%
28.0%
29.0%
30.0%
7.2% 7.7% 8.2% 8.7% 9.2%
26.1 24.2 22.5 21.1 19.9
27.0 25.0 23.3 21.8 20.5
27.9 25.8 24.0 22.5 21.2
28.8 26.6 24.8 23.2 21.8
29.7 27.4 25.5 23.9 22.5
24 7.2% 7.7% 8.2% 8.7% 9.2%
0.5% 24.0 22.5 21.2 20.0 19.0
2.0% 30.4 27.9 25.8 24.0 22.5
2.5% 33.4 30.4 27.9 25.8 24.0
Terminal value growth 1.0% 1.5% 25.8 27.9 24.0 25.8 22.5 24.0 21.2 22.5 20.0 21.2
Source: Erste Group estimates
Erste Group Research – Sector Report
Page 38
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report Cyfrowy Polsat | MEDIA | Poland 25 September 2013 Income Statement (IAS, PLN mn, 31/12)
Net sales Cost of goods sold Gross profit SG&A Other operating revenues Other operating expenses EBITDA Depreciation/amortization EBIT Financial result Extraordinary result EBT Income taxes Result from discontinued operations Minorities and cost of hybrid capital Net result after minorities
Balance Sheet
2010
2011
2012
2013e
2014e
2015e
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
1,482.46 -531.44 951.03 -385.67 0.00 -172.39 392.97 -81.19 311.78 -4.47 0.00 307.31 -62.81 0.00 0.00 244.50
2,365.93 -833.59 1,532.33 -469.80 0.00 -256.07 735.18 -174.88 560.30 -368.23 0.00 192.07 -31.88 0.00 0.00 160.19
2,778.22 -897.68 1,880.53 -491.10 0.00 -268.25 1,032.25 -243.07 789.18 -93.53 0.00 695.65 -97.35 0.00 0.00 598.30
2,882.39 -858.47 2,023.93 -503.05 0.00 -501.88 1,019.00 -254.70 764.30 -121.49 0.00 642.81 -122.13 0.00 0.00 520.67
2,964.25 -855.79 2,108.46 -519.97 0.00 -511.57 1,076.92 -261.94 814.98 -87.52 0.00 727.47 -138.22 0.00 0.00 589.25
3,009.55 -854.39 2,155.16 -529.95 0.00 -525.29 1,099.93 -267.27 832.66 -76.70 0.00 755.96 -143.63 0.00 0.00 612.33
2010
2011
2012
2013e
2014e
2015e
75.57 465.80 4.16 545.52 173.15 269.20 0.00 27.62 469.97 1,015.50 427.94 0.00 0.00 0.00 0.00 1.10 67.72 68.82 18.53 500.21 352.31 1,015.50
3,306.48 907.50 64.17 4,278.15 315.56 478.36 0.00 277.53 1,071.45 5,349.60 1,896.04 0.00 0.00 0.00 0.00 2,375.93 108.15 2,484.08 352.08 617.39 770.06 5,349.60
3,416.83 1,022.60 39.71 4,479.15 303.63 512.27 0.00 270.35 1,086.25 5,565.40 2,470.40 0.00 0.00 0.00 0.00 1,909.48 117.68 2,027.16 373.10 694.73 866.59 5,565.40
3,433.85 975.06 39.71 4,448.62 345.89 523.36 0.00 295.11 1,164.36 5,612.98 2,989.08 0.00 0.00 0.00 0.00 1,730.88 94.81 1,825.69 202.00 596.21 593.20 5,612.98
3,461.98 956.82 39.71 4,458.51 355.71 528.02 0.00 259.66 1,143.39 5,601.90 3,265.92 0.00 0.00 0.00 0.00 1,483.96 94.81 1,578.77 148.45 608.76 547.06 5,601.90
3,490.58 937.77 39.71 4,468.07 361.15 527.80 0.00 222.01 1,110.96 5,579.02 3,524.70 0.00 0.00 0.00 0.00 1,223.66 94.81 1,318.47 120.61 615.24 526.35 5,579.02
2010
2011
2012
2013e
2014e
2015e
197.54 -50.74 -191.39 -45.04
349.16 -2,426.75 2,327.06 249.92
782.36 -133.43 -654.80 -7.18
758.80 -249.81 -484.20 24.75
963.52 -271.63 -727.35 -35.46
970.93 -276.62 -731.95 -37.64
(IAS, PLN mn, 31/12)
Intangible assets Tangible assets Financial assets Total fixed assets Inventories Receivables and other current assets Other assets Cash and cash equivalents Total current assets TOTAL ASSETS Shareholders'equity Minorities Hybrid capital and other reserves Pension and other LT personnel accruals LT provisions Interest-bearing LT debts Other LT liabilities Total long-term liabilities Interest-bearing ST debts Other ST liabilities Total short-term liabilities TOTAL LIAB. , EQUITY
Cash Flow Statement (IAS,PLN mn, 31/12)
Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities CHANGE IN CASH , CASH EQU.
Margins & Ratios Sales growth EBITDA margin EBIT margin Net profit margin ROE ROCE Equity ratio Net debt Working capital Capital employed Inventory turnover Source: Company data, Erste Group estimates
2010
2011
2012
2013e
2014e
2015e
15.9% 26.5% 21.0% 16.5% 65.2% 59.8% 42.1% -8.0 117.7 487.7 3.6
59.6% 31.1% 23.7% 6.8% 13.8% 6.0% 35.4% 2,450.5 301.4 4,454.7 3.4
17.4% 37.2% 28.4% 21.5% 27.4% 12.9% 44.4% 2,012.2 219.7 4,600.3 2.9
3.7% 35.4% 26.5% 18.1% 19.1% 13.4% 53.3% 1,637.8 571.2 4,721.7 2.6
2.8% 36.3% 27.5% 19.9% 18.8% 14.3% 58.3% 1,372.8 596.3 4,733.5 2.4
1.5% 36.5% 27.7% 20.3% 18.0% 14.4% 63.2% 1,122.3 584.6 4,741.8 2.4
Erste Group Research – Sector Report
Page 39
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Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report TVN | Media | Poland 25 September 2013
TVN Reduce
All pric es are thos e c urrent at the end of the previ ous tr adi ng session unl ess other wise indicated and ar e s ourc ed fr om loc al exc hanges vi a Reuters, Bl oomberg and other vendors .
Erste Gr oup R es earc h – C ompany R eport TVN | Media | Pol and 24 September 2013
TEST
PLN mn 2012 2013e Net sales 1,581.1 1,594.9 EBITDA 456.0 527.6 EBIT 374.3 459.8 Net result after min. 470.2 89.8 EPS (PLN) 1.38 0.26 CEPS (PLN) 1.20 0.46 BVPS (PLN) 3.99 3.66 Div./share (PLN) 0.64 0.13 EV/EBITDA (x) 9.5 13.2 P/E (x) 7.2 53.5 P/CE (x) 8.3 30.5 Dividend Yield 6.5% 0.9% Share price (PLN) close as of 23/09/2013 Number of shares (mn) Market capitalization (PLN mn / EUR mn) Enterprise value (PLN mn / EUR mn)
2014e 1,634.8 586.5 510.8 322.0 0.94 1.17 4.47 0.47 11.4 14.9 12.1 3.4%
2015e 1,687.5 637.5 561.4 346.6 1.02 1.24 5.02 0.51 10.3 13.9 11.4 3.6% 14.1 340.9 4,804 / 1,137 6,970 / 1,649
52 weeks 15 14 13 12 11 10 9 8 7 6
Performance in PLN
TVN
WIG 20
12M
6M
3M
1M
109.4%
49.9%
32.9%
2.8%
Reuters TVNN.WA Free float Bloomberg TVN PW Shareholders Div. Ex-date 18/04/13 Target price 13.0 Homepage:
43.6% ITI Group (56.45%) www.tvn.pl
Cost-cutting priced in, premium to peers Recommendation: We have increased our 12M target price from PLN 9.0 to PLN 13.0 as a consequence of our revised DCF model. Given the current share price, our Reduce recommendation is unchanged.
Analyst: Vaclav Kminek +420 224 995 289
[email protected]
Ad market: We expect the Polish ad market to be down 4.8% y/y in 2013, followed by a 2.5% y/y recovery in 2014. Asset disposals: TVN finalized the sale of a majority stake in Onet.pl for PLN 956mn as well as the merger of the Cyfra+/n Platform. Proceeds from the sale of Onet.pl decreased its leverage (net debt/EBITDA2013) to 4.1. Bond refinancing: TVN refinanced its 10.75% 2017 notes, with new 7.375% 2020 notes totaling EUR 430mn. This will save up to PLN 60mn and improve the 2014 figures significantly. WIG changes: TVN was excluded from the WIG 20 index, but will be added to a new WIG 30 index. Valuation: TVN is traded at EV/EBITDA2014 of 11.4 and P/E2014 of 14.9, respectively some 32% and 63% above its peers, which is not justifiable, in our view.
Erste Group Research – Sector Report
Page 40
All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report TVN | Media | Poland 25 September 2013
Investment case Pure FTA broadcaster with minority stakes in online and pay TV business
TVN sold its approx. 75% stake in Onet.pl (it still holds an approx. 25% stake) and merged its pay-TV segment with Cyfra+ (it now holds approx. 32% in the combined entity), which it is very likely to sell in coming years. The sale of an approx. 75% stake in Onet.pl for PLN 956mn in fresh cash significantly improved TVN’s debt profile.
Cost-cutting program offsets weak ad markets
We expect the Polish ad market to be down 4.8% y/y in 2013, followed by a mild recovery in 2014. TVN reacted with a cost-cutting program, which improved its figures. We have increased our 12M target price from PLN 9.0 to PLN 13.0 as a consequence of the revised DCF model. Given the current share price, our recommendation is unchanged at Reduce. TVN is now a pure FTA player, highly dependent on TV ad market performance and more vulnerable to potential shocks. TVN could even get into a difficult position, in the event that strong competitor Cyfrowy Polsat starts any kind of price war, with a consequent impact on the margins. On the other hand, the potential future sale of approx. 32% in the pay-TV entity and approx. 25% stake in Onet.pl will further improve TVN’s cash position. We expect an additional PLN 860mn from the sale of minorities in the years to come.
TVN improved debt maturity, lowered interest cost
TVN refinanced its 10.75% 2017 notes, with new 7.375% 2020 notes totaling EUR 430mn. This will save up to PLN 60mn and significantly improve the 2014 figures.
2Q13 review: cost-cutting significantly improved operating performance
TVN presented 2Q13 figures slightly above estimates. Revenues were down 2.5% y/y, while EBITDA was up 10.0% y/y. Revenue from TV operations (excl. Teleshopping) fell 2% in 2Q13, driven primarily by the improving, albeit still negative, trend in the TV advertising market. TVN outperformed the market thanks to their improved audience share. The decline in revenue was more than offset by cost discipline and significant cost savings, which resulted in an EBITDA increase of 10% in the second quarter (excluding the negative impact of share of loss of associates, this growth would be 20% y/y). The EBITDA margin in the TV segment improved significantly: 39.8% vs. 32.5% in 2Q12. Consolidated, IFRS Reported (PLN mn)
Expected
Reported
2Q 13a
2Q 12
y/y
Erste
Cons.
vs. Erste
vs. Cons.
Revenue
440.5
451.8
-2.5%
433.3
440.0
1.6%
0.1%
EBITDA
157.4
143.0
10.0%
153.4
145.0
2.6%
8.6%
EBIT
137.3
125.7
9.2%
132.0
126.0
4.0%
8.9%
Net earnings
-32.0
-234.0
-86.3%
-48.7
-36.0
-34.3%
-11.1%
Operating margin
31.2%
27.8%
30.5%
28.6%
Net margin
-7.3%
-51.8%
-11.2%
-8.2%
Source: TVN, Bloomberg, PAP, Erste Group Research;
Change in estimates – improved operating performance
We have compared the key highlights and changes since our last report. We have slightly revised upward our anticipated growth of the TV ad market in Poland and TVN’s market share.
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Page 41
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report TVN | Media | Poland 25 September 2013 Change in estimates Consolidated, IFRS (PLN, mn) Revenues EBITDA EBIT Net profit
2013e Now Before Change 1594.9 527.6 459.8 89.8
1515.1 5.3% 498.6 5.8% 433.9 6.0% 141.8 -36.7%
2014e Now Before Change 1634.8 586.5 510.8 322.0
1538.0 524.9 452.8 204.5
6.3% 11.7% 12.8% 57.5%
2015e Now Before Change 1687.5 637.5 561.4 346.6
1579.0 525.6 453.4 180.7
6.9% 21.3% 23.8% 91.8%
Source: Erste Group Research
Risks and triggers The main risks and concerns regarding investing in TVN can be summarized as follows: Risks: TV ad market still seems to be resilient in Poland, but is still relatively fragile, given global economy uncertainties; any further economic slowdown will definitely negatively weigh on advertiser budgets. Relatively high leverage (net debt/EBITDA close to 3.5 at YE12), possible financing problems; however, maturity is distant (2017 and beyond). Cost-cutting could lead to audience share losses. ITI group finances (majority shareholder) and need for funds could lead to the forced sale of TVN’s shares or the forcing of TVN to further leverage itself. Triggers: TVN could be an interesting acquisition target. Price of TV advertising is below EU levels and should converge in long term.
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Page 42
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report TVN | Media | Poland 25 September 2013
Financials Net debt to equity ratio peaked in 2011 (significant FX losses in 2011), while net debt/EBITDA peaked in 2012. The maturity of TVN’s debt is not a major issue now, as the maturity of the highest portion of outstanding debt has been postponed far ahead to 2018. Net debt/EBITDA reached 4.5 at the end of 2012. Net debt/Equity and Net debt/EBITDA ratios 4.5 300%
4.0
270%
4.1
4.5
4.2
4.0
293%
3.3
240% 210% 180% 150%
3.5 2.8
195%
2.6
3.0
177%
162%
2.5
151%
120%
129%
90%
106%
60%
2.0 1.5
30% 0%
1.0 2009
2010
net debt/Equity
2011
2012
2013e
2014e
2015e
net debt/EBITDA
Source: Erste Group Research
Model parameters unchanged
TVN is now a pure FTA player, highly dependent on TV ad market performance and more vulnerable to potential shocks. We used a standard DCF model for the valuation of TVN. The equity value of the company was calculated at PLN 4,108.0mn, yielding a 12M target price of PLN 13.0/share and a Reduce recommendation.
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Page 43
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report TVN | Media | Poland 25 September 2013 WACC calculation 2014e
2015e
2016e
2017e
2018e
Term. value Normalized
Risk free rate Equity risk premium Beta Cost of equity
4.5% 6.0% 1.5 13.5%
4.5% 6.0% 1.5 13.5%
4.5% 6.0% 1.5 13.5%
4.5% 6.0% 1.5 13.5%
4.5% 6.0% 1.5 13.5%
5.0% 5.7% 1.0 10.7%
Cost of debt Effective tax rate After-tax cost of debt
7.0% 19.0% 5.7%
7.0% 19.0% 5.7%
7.0% 19.0% 5.7%
7.0% 19.0% 5.7%
7.0% 19.0% 5.7%
7.5% 19.0% 6.1%
Equity weight WACC
60% 10.4%
60% 10.4%
60% 10.4%
60% 10.4%
60% 10.4%
60% 8.9%
(PLN mn)
2014e
2015e
2016e
2017e
2018e
Normalized
Sales growth EBIT EBIT margin Tax rate Taxes on EBIT NOPLAT
0.4% 510.8 32.0% 19.0% -97.0 413.7
2.5% 561.4 34.3% 19.0% -106.7 454.7
3.2% 573.0 34.0% 19.0% -108.9 464.2
3.5% 587.1 33.6% 19.0% -111.6 475.6
2.1% 590.5 33.1% 19.0% -112.2 478.3
2.5% 603.1 33.0% 19.0% -114.6 488.5
75.7 117.8% 34.0 583.6% -89.2
76.1 121.0% 1.8 4.6% -92.1
76.7 120.7% -8.8 -16.7% -92.6
76.4 121.2% -4.1 -7.0% -92.6
75.9 120.9% -1.8 -4.9% -91.7
75.9 105.0% -1.8 -4.0% -79.7
434.3
440.5
439.4
455.3
460.7
482.9
281.3
1.5% 6,668.7 3,741.1
DCF valuation
+ Depreciation Capital expenditures / Depreciation +/- Change in working capital Chg. working capital / chg. Sales - Capital expenditures Free cash flow to the firm Terminal value growth Terminal value Discounted free cash flow - Dec 31 2013 Enterprise value - Dec 31 2013
393.5 5,411.2
Minorities Non-operating assets Net debt Other adjustments Equity value - Dec 31 2013
862.7 0.0 2,165.9 0.0 4,108.0
Number of shares outstanding (mn) Cost of equity 12M target price per share (PLN)
340.9 13.5% 13.0
Current share price (PLN) Up/Downside
14.1 -8.0%
Enterprise value breakdown
361.7
326.9
306.8
Sensitivity (per share)
32.0%
32.5%
33.0%
33.5%
34.0%
WACC
PV of terminal value 69%
13 7.9% 8.4% 8.9% 9.4% 9.9%
14.5 13.5 12.6 11.8 11.1
14.7 13.7 12.8 12.0 11.3
15.0 13.9 13.0 12.2 11.5
15.2 14.1 13.2 12.3 11.6
15.4 14.3 13.3 12.5 11.8
WACC WACC
Terminal value EBIT margin PV of detailed period 31%
13 7.9% 8.4% 8.9% 9.4% 9.9%
0.5% 13.0 12.2 11.5 10.8 10.3
2.0% 16.2 15.0 13.9 13.0 12.2
2.5% 17.7 16.2 15.0 13.9 13.0
Terminal value growth 1.0% 1.5% 13.9 15.0 13.0 13.9 12.2 13.0 11.5 12.2 10.8 11.5
Source: Erste Group Research; * Valuation of PLN 862.7mn minorities: 25% stake in Onet.pl was valued at PLN 318.6mn (TVN sold its 75% stake in Onet.pl for PLN 956mn = 100% stake was valued at implied value of PLN 1275mn). The 32% stake in the merged "Cyfra+N" entity was valued at PLN 544.1mn - as 8.5 of its EBITDA 2013e Erste Group Research – Sector Report EMISPDF pl-kpmg-ir2 from 78.133.196.25 on 2014-09-09 16:04:39 BST. DownloadPDF. Downloaded by pl-kpmg-ir2 from 78.133.196.25 at 2014-09-09 16:04:39 BST. EMIS. Unauthorized Distribution Prohibited.
Page 44
Erste Group Research – Erste Sector Media – 25 September 2013 Erste Group Research – Company Report TVN | Media | Poland 25 September 2013 Income Statement (IAS, PLN mn, 31/12)
Net sales Cost of goods sold Gross profit SG&A Other operating revenues Other operating expenses EBITDA Depreciation/amortization EBIT Financial result Extraordinary result EBT Income taxes Result from discontinued operations Minorities and cost of hybrid capital Net result after minorities
Balance Sheet
2010
2011
2012
2013e
2014e
2015e
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
1,925.13 -784.48 1,140.65 -315.59 0.00 180.19 610.70 -246.96 585.36 -266.48 0.00 318.88 -59.86 0.00 0.00 259.02
1,584.26 -795.08 789.19 -365.17 0.00 198.21 659.80 -248.39 549.26 -633.41 0.00 -84.15 18.56 0.00 0.00 -65.60
1,581.07 -1,043.26 537.81 -370.71 0.00 218.03 456.04 -81.77 374.27 -156.35 0.00 217.91 252.33 0.00 0.00 470.24
1,594.90 -999.51 595.39 -385.53 0.00 239.83 527.62 -67.77 459.85 -347.62 0.00 112.23 -22.45 0.00 0.00 89.78
1,634.83 -972.61 662.23 -400.96 0.00 263.81 586.49 -75.73 510.76 -108.22 0.00 402.54 -80.51 0.00 0.00 322.03
1,687.53 -973.89 713.64 -416.99 0.00 290.20 637.51 -76.12 561.39 -128.09 0.00 433.30 -86.66 0.00 0.00 346.64
2010
2011
2012
2013e
2014e
2015e
2,723.78 770.62 459.71 3,954.11 247.00 510.11 0.00 480.29 1,237.41 5,191.52 1,238.69 0.00 0.00 0.00 0.00 3,113.38 186.32 3,299.70 0.00 653.14 653.14 5,191.52
1,900.81 340.32 124.76 2,365.89 241.47 449.15 1,463.37 592.13 2,746.11 5,112.00 923.42 0.00 0.00 0.00 0.00 3,295.06 183.51 3,478.57 0.00 710.02 456.41 5,112.00
405.53 414.55 2,175.75 2,995.82 259.23 487.37 0.00 2,139.25 2,885.85 5,881.67 1,359.27 0.00 0.00 0.00 0.00 3,151.66 52.28 3,203.94 0.00 1,318.47 394.78 5,881.67
388.98 592.77 2,161.98 3,143.72 287.08 433.81 0.00 320.72 1,041.61 4,185.33 1,247.24 0.00 0.00 0.00 0.00 2,522.85 46.72 2,569.57 0.00 368.53 368.58 4,185.33
420.91 594.28 2,196.49 3,211.68 253.40 434.26 0.00 261.92 949.58 4,161.25 1,524.37 0.00 0.00 0.00 0.00 2,225.55 41.99 2,267.54 0.00 369.34 369.39 4,161.25
438.76 597.71 2,212.54 3,249.01 253.13 438.35 0.00 247.20 938.68 4,187.69 1,710.00 0.00 0.00 0.00 0.00 2,064.72 37.97 2,102.69 0.00 374.99 375.05 4,187.69
2010
2011
2012
2013e
2014e
2015e
504.06 -231.08 -174.39 98.61
435.23 48.15 -319.43 111.83
325.25 530.11 -1,207.52 1,547.12
541.40 735.31 -1,196.17 -1,818.53
549.65 -79.61 -528.83 -58.80
560.55 -84.28 -490.99 -14.72
(IAS, PLN mn, 31/12)
Intangible assets Tangible assets Financial assets Total fixed assets Inventories Receivables and other current assets Other assets Cash and cash equivalents Total current assets TOTAL ASSETS Shareholders'equity Minorities Hybrid capital and other reserves Pension and other LT personnel accruals LT provisions Interest-bearing LT debts Other LT liabilities Total long-term liabilities Interest-bearing ST debts Other ST liabilities Total short-term liabilities TOTAL LIAB. , EQUITY
Cash Flow Statement (IAS,PLN mn, 31/12)
Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities CHANGE IN CASH , CASH EQU.
Margins & Ratios Sales growth EBITDA margin EBIT margin Net profit margin ROE ROCE Equity ratio Net debt Working capital Capital employed Inventory turnover Source: Company data, Erste Group estimates
2010
2011
2012
2013e
2014e
2015e
-9.0% 31.7% 30.4% 13.5% 20.5% 13.5% 23.9% 2,311.4 584.3 3,736.4 3.3
-17.7% 41.6% 34.7% -4.1% -6.1% 5.0% 18.1% 2,627.9 826.3 3,734.9 3.3
-0.2% 28.8% 23.7% 29.7% 41.2% 40.3% 23.1% 962.4 2,491.1 2,374.0 4.2
0.9% 33.1% 28.8% 5.6% 6.9% 11.6% 29.8% 2,165.9 673.0 3,459.9 3.7
2.5% 35.9% 31.2% 19.7% 23.2% 13.4% 36.6% 1,892.9 580.2 3,459.3 3.6
3.2% 37.8% 33.3% 20.5% 21.4% 13.7% 40.8% 1,730.7 563.6 3,478.7 3.8
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Erste Group Research – Erste Sector Media – 25 September 2013
Contacts Group Research Head of Group Research Friedrich Mostböck, CEFA Major Markets & Credit Research Head: Gudrun Egger, CEFA Adrian Beck (Fixed income AT, CH) Hans Engel (Senior Analyst International Equities) Christian Enger, CFA (Covered Bonds) Mildred Hager-Germain (Senior Economist, Euro, US) Alihan Karadagoglu (Senior Analyst Corporate Bonds) Peter Kaufmann (Corporate Bonds) Stephan Lingnau (International Equities) Elena Statelov, CIIA (Corporate Bonds) Gerald Walek, CFA (Economist Euro) Katharina Böhm-Klamt (Student Analyst Euro) Lisa-Maria Sommer (Student Analyst Euro) Macro/Fixed Income Research CEE Head CEE: Juraj Kotian (Macro/FI) CEE Equity Research Head: Henning Eßkuchen Chief Analyst: Günther Artner, CFA (CEE Equities) Günter Hohberger (Banks) Franz Hörl, CFA (Basic Resources) Daniel Lion, CIIA (Technology, Ind. Goods&Services) Thomas Unger; CFA (Insurance, Miscellaneous) Vera Sutedja, CFA (Telecom) Vladimira Urbankova, MBA (Pharma) Martina Valenta, MBA (Real Estate) Editor Research CEE Brett Aarons Deniz Gurgen Research Croatia/Serbia Head: Mladen Dodig (Equity) Head: Alen Kovac (Fixed income) Anto Augustinovic (Equity) Ivana Rogic (Fixed income) Davor Spoljar; CFA (Equity) Research Czech Republic Head: David Navratil (Fixed income) Petr Bittner (Fixed income) Head: Petr Bartek (Equity) Vaclav Kminek (Media) Katarzyna Rzentarzewska (Fixed income) Martin Krajhanzl (Equity) Martin Lobotka (Fixed income) Lubos Mokras (Fixed income) Josef Novotný (Equity) Research Hungary Head: József Miró (Equity) András Nagy (Equity) Orsolya Nyeste (Fixed income) Tamás Pletser, CFA (Oil&Gas) Zoltan Arokszallasi (Fixed income) Research Poland Head: Magdalena Komaracka, CFA (Equity) Marek Czachor (Equity) Tomasz Duda (Equity) Adam Rzepecki (Equity) Michal Zasadzki (Equity) Research Romania Head: Mihai Caruntu (Equity) Head: Dumitru Dulgheru (Fixed income) Chief Analyst: Eugen Sinca (Fixed income) Dorina Cobiscan (Fixed Income) Raluca Ungureanu (Equity) Marina Alexandra Spataru (Equity) Research Slovakia Head: Maria Valachyova (Fixed income) Martin Balaz (Fixed income) Research Turkey Head: Can Yurtcan Evrim Dairecioglu (Equity) M. Görkem Göker (Equity)
+43 (0)5 0100 11902 +43 (0)5 0100 11909 +43 (0)5 0100 11957 +43 (0)5 0100 19835 +43 (0)5 0100 84052 +43 (0)5 0100 17331 +43 (0)5 0100 19633 +43 (0)5 0100 11183 +43 (0)5 0100 16574 +43 (0)5 0100 19641 +43 (0)5 0100 16360 +43 (0)5 0100 19632 +43 (0)5 0100 19632 +43 (0)5 0100 17357 +43 (0)5 0100 19634 +43 (0)5 0100 11523 +43 (0)5 0100 17354 +43 (0)5 0100 18506 +43 (0)5 0100 17420 +43 (0)5 0100 17344 +43 (0)5 0100 11905 +43 (0)5 0100 17343 +43 (0)5 0100 11913 +420 956 711 014 +90 212 371 2538 +381 11 22 09 178 +385 62 37 1383 +385 62 37 2833 +385 62 37 2419 +385 62 37 2825 +420 224 995 439 +420 224 995 172 +420 224 995 227 +420 224 995 289 +420 224 995 232 +420 224 995 434 +420 224 995 192 +420 224 995 456 +420 224 995 213 +361 235-5131 +361 235-5132 +361 373-2026 +361 235-5135 +361 373-2830 +48 22 330 6256 +48 22 330 6254 +48 22 330 6253 +48 22 330 6252 +48 22 330 6251 +40 3735 10427 +40 3735 10433 +40 3735 10435 +40 3735 10436 +40 3735 10428 +40 3735 10429 +421 2 4862 4185 +421 2 4862 4762 +90 212 371 2540 +90 212 371 2535 +90 212 371 2534
Sezai Saklaroglu (Equity) Nilufer Sezgin (Fixed income) Ilknur Unsal (Equity)
+90 212 371 2533 +90 212 371 2536 +90 212 371 2531
Group Institutional & Retail Sales Institutional Equity Sales Core Markets Head: Brigitte Zeitlberger-Schmid +43 (0)5 0100 83123 Cash Equity Sales Hind Al Jassani +43 (0)5 0100 83111 Werner Fuerst +43 (0)5 0100 83121 Josef Kerekes +43 (0)5 0100 83125 Cormac Lyden, CFA +43 (0)5 0100 83127 Stefan Raidl +43 (0)5 0100 83113 Simone Rentschler +43 (0)5 0100 83124 Derivative Sales Christian Luig +43 (0)5 0100 83181 Sabine Kircher +43 (0)5 0100 83161 Christian Klikovich +43 (0)5 0100 83162 Armin Pfingstl +43 (0)5 0100 83171 Roman Rafeiner +43 (0)5 0100 83172 Institutional Equity Sales London Declan Wooloughan +44 20 7623 4154 Institutional Equity Sales Croatia Damir Eror (Equity) + 385 62 37 2836 Zeljka Kajkut (Equity) +38 562 37 28 11 Institutional Sales Czech Republic Head: Michal Rizek +420 224 995 537 Pavel Krabicka (Equity) +420 224 995 411 Radim Kramule (Equity) +420 224 995 537 Jiri Smehlik (Equity) +420 224 995 510 Tomas Vender (Equity) +420 224 995 593 Institutional Sales Hungary Gregor Glatzer (Equity) +361 235 5144 Attila Preisz (Equity) +361 235 5140 Norbert Siklosi (Fixed income) +361 235 5842 Institutional Equity Sales Poland Pawel Czuprynski (Equity) +4822 330 6212 Jacek Krysinski (Equity) +4822 330 6218 Emil Onyszczuk (Equity) +48 22 330 62 14 Grzegorz Stepien (Equity) +48 22 330 6211 Institutional Equity Sales Turkey Simin Öz Gerards (Head) +9 0212 371 2525 Murat Guneren (Equity) +9 0212 371 2521 Varol Guzel (Equity) +9 0212 371 2523 Mine Yoruk (Equity) +9 0212 371 2526 Ebru Doganay Percin (Equity) +9 0212 371 2522 Institutional Equity Sales Slovakia Head: Dusan Svitek +48 62 56 20 Andrea Slesarova (Client sales) +48 62 56 27 Saving Banks & Sales Retail Head: Thomas Schaufler +43 (0)5 0100 84225 Equity Retail Sales Head: Kurt Gerhold +43 (0)5 0100 84232 Fixed Income & Certificate Sales Head: Uwe Kolar +43 (0)5 0100 83214 Treasury Domestic Sales Head: Markus Kaller +43 (0)5 0100 84239 Corporate Sales AT Mag. Martina Kranzl +43 (0)5 0100 84147 Karin Rattay +43 (0)5 0100 84112 Mag. Markus Pistracher +43 (0)5 0100 84152 Günther Gneiss +43 (0)5 0100 84145 Jürgen Flassak, MA +43 (0)5 0100 84141 Antonius Burger-Scheidlin, MBA +43 (0)5 0100 84624 Fixed Income Institutional Desk Head G7: Thomas Almen +43 (0)5 0100 84323 Head Germany: Ingo Lusch +43 (0)5 0100 84111 Fixed Income International & High End Sales Vienna Jaromir Malak/ Zach Carvell +43 (0)5 100 84254 U. Inhofner/ P. Zagan/ C. Mitu +43 (0)5 100 84254 Fixed Income International Sales London Antony Brown +44 20 7623 4159
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Erste Group Research – Erste Sector Media – 25 September 2013
Agora
Rating history Date 18. Sep 12 14. Sep 11 17. Dec 10 20. Nov 09 16. Feb 09 30. Jan 09 16. May 07 10. Oct 05 27. Feb 04
20 18 16
14 12 10
Price 7.47 13.50 27.30 20.27 13.70 13.39 42.90 63.10 44.30
Target Price 8.50 20.00 27.50 24.00 15.50 46.60 76.30 42.20
Company description Agora is a multimedia group with assets spread across various distribution channels (with only television broadcasting missing). The core asset is the printed newspaper segment, with flagship Gazeta Wyborcza. However, Agora is also well installed in the m
8
18.09 A
6 4 Dez 11
Rating Accumulate Buy Hold Buy Hold Under review Hold Buy Hold
Mär 12
Jun 12
Sep 12
Dez 12
Mär 13
Jun 13
Sep 13
Target price 12 m fwd
CME
Rating history Date 24. May 13 22. Apr 13 11. Jun 12 14. Sep 11 17. Dec 10 14. Jun 10 19. Nov 09 16. Feb 09 30. Jan 09 27. Feb 08 31. Jan 07 21. Jun 05
16 14 12
10 8 6 4
11.06 H
2 0 Dez 11
Mär 12
Jun 12
22.04 24.05 Ur A
Sep 12
Dez 12
Mär 13
Jun 13
Target price 12 m fwd
Rating Accumulate Under review Hold Buy Accumulate Buy Reduce Buy Under review Reduce Accumulate Buy
Price 3.68 3.87 5.06 10.42 19.35 20.71 27.75 8.77 9.86 97.83 86.79 50.00
Target Price 4.00 6.10 15.00 23.50 33.00 27.00 35.30 92.60 97.80 55.00
Company description Sep 13
CME is the leading CEE television broadcaster, with operations in six CEE countries (the Czech Republic, Slovakia, Romania, Bulgaria, Croatia, and Slovenia). The main source of revenue stems from advertising, as CME primarily broadcasts FTA. Lately, it also launched its Internet operations and content division.
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Erste Group Research – Erste Sector Media – 25 September 2013
Cinema City
Rating history Date 12. Jul 13 18. Sep 12 26. Jan 12 21. Sep 11 24. Jan 11 20. Oct 10 06. Apr 10 23. Oct 09 18. Dec 08 23. Sep 08
36 34 32 30 28 26 24 22 Dez 11
Rating Accumulate Reduce Hold Buy Accumulate Hold Sell Reduce Hold Not rated
Price 29.20 27.65 31.50 27.00 43.78 42.30 35.77 22.70 15.50 21.42
Target Price 32.50 27.50 32.00 39.96 50.00 43.00 30.52 20.51 16.60
Company description 23.03 H
Mär 12
18.09 R
Jun 12
Sep 12
Cinema City is the largest operator of multiplexes in CEE and Israel (no. 4 in Europe). It has 967 cinema screens, located in six countries: Poland (339), Israel (139), Hungary (176), the Czech Republic (111), Romania (122), and Bulgaria (51). The company Mär 13 Jun 13 Sep 13 is also an important player in the cinema advertising and film Target price 12 m fwd distribution businesses. The company is expanding in the region and plans to add 300 screens in the years to come. The biggest investment pipeline is planned for Romania (75% of the new fleet). 12.07 A
Dez 12
Cyfrowy Polsat
Rating history Date 14. Sep 11 09. Apr 09
23 22
Rating Buy Accumulate
Price 13.43 13.72
Target Price 19.00 16.60
21
20 19 18
Company description
17
Cyfrowy Polsat operates in two segments: the retail business segment, which provides digital TV, broadband Internet and mobile telephony services, and the broadcasting and television production segment. Cyfrowy is the leading DTH pay-TV operator in Poland
16 15 14 13 12 Dez 11
Mär 12
Jun 12
Sep 12
Dez 12
Mär 13
Jun 13
Sep 13
Target price 12 m fwd
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Erste Group Research – Erste Sector Media – 25 September 2013
TVN
Rating history Date 05. Feb 13 18. Sep 12 14. Sep 11 17. Dec 10 31. May 10 20. Nov 09 06. Nov 09 16. Feb 09 30. Jan 09 03. Jun 08 27. Feb 08
16 14 12 10 8 6 4 2 Dez 11
23.03 A
Mär 12
18.09 H
Jun 12
Sep 12
05.02 R
Dez 12
Rating Reduce Hold Accumulate Buy Accumulate Buy Under review Accumulate Under review Hold Accumulate
Price 8.99 7.08 13.80 16.95 17.37 13.07 13.30 9.25 11.85 18.50 23.30
Target Price 9.00 7.50 16.00 21.00 20.00 16.00 14.60 20.00 26.90
Company description
TVN is a Polish commercial media group, which broadcasts several TV channels. The core business is focused on FTA broadcasting through the "TVN" channel and also various Mär 13 Jun 13 Sep 13 thematic channels. The main source of revenue comes from Target price 12 m fwd advertising. TVN sold a majority stake in Onet.pl and merged its pay-TV segment with competing Cyfra+. TVN still has minority interests in the online division (25% in Onet.pl) and pay-TV segment (32% in merged N/Cyfra+).
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Erste Group Research – Erste Sector Media – 25 September 2013
Important Disclosures THIS DOCUMENT MAY NOT BE TAKEN, TRANSMITTED OR DISTRIBUTED INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR TO ANY U.S. PERSON OR TO ANY INDIVIDUAL OUTSIDE CANADA, AUSTRALIA OR JAPAN WHO IS A RESIDENT OF THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR TO THE PRESS IN THESE COUNTRIES General disclosures All recommendations given by Erste Group Research are independent and based on the latest company, industry and general information publicly available. The best possible care and integrity is used to avoid errors and/or misstatements. No influence on the rating and/or target price is being exerted by either the covered company or other internal Erste Group departments. Each research piece is reviewed by a senior research executive or agreed with a senior analyst/deputy (4-eyed principle). Erste Group Compliance Rules state that no analyst is allowed to hold a direct ownership position in securities issued by the covered company or derivatives thereof. Analysts are not allowed to involve themselves in any paid activities with the covered companies except as disclosed otherwise. No part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by them contained in this document. Erste Group may engage in transactions with financial instruments, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Erste Group, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report.
Disclosure Checklist Company
ISIN
Disclosure
Agora Cinema City CME Cyfrowy Polsat TVN
PLAGORA00067 NL0000687309 BMG200452024 PLCFRPT00013 PLTVN0000017
2, 5
Disclosures of potential conflicts of interest relating to Erste Group AG, its affiliates, subsidiaries (together “Erste Group AG”) and its relevant employees with respect to the issuers, financial instruments and/or securities forming the subject of this document are valid as of the end of the month prior to publication of this document. Updating this information may take up to ten days after month end.
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Erste Group Research – Erste Sector Media – 25 September 2013
Description of specific disclosures (2)
Erste Group AG and/or its affiliates act(s) as market maker or liquidity provider for securities issued by the covered company.
(5)
Erste Group AG and/or its affiliates managed or co-managed an issue of financial instruments/ securities for the company during the last 12 months.
Erste Group rating definitions Buy
> +20% to target price
Accumulate
+10% < target price < +20%
Hold
0% < target price < +10%
Reduce
-10% < target price < 0%
Sell
< -10% to target price
Our target prices are established by determining the fair value of stocks, taking into account additional fundamental factors and news of relevance for the stock price (such as M&A activities, major forthcoming share deals, positive/negative share/sector sentiment, news) and refer to 12 months from now. All recommendations are to be understood relative to our current fundamental valuation of the stock. The recommendation does not indicate any relative performance of the stock vs. a regional or sector benchmark.
Distribution of ratings Coverage universe Recommendation Buy Accumulate Hold Reduce Sell N.R./UND.REV./RESTR. Total
No. 47 60 44 11 9 15 186
in % 25.3 32.3 23.7 5.9 4.8 8.1 100.0
Inv. banking-relationship No. in % 6 30.0 4 20.0 6 30.0 3 15.0 1 5.0 0 0.0 20 100.0
Explanation of valuation parameters and risk assessment Unless otherwise stated in the text of the financial analysis/investment research, target prices in the publication are based on either a discounted cash flow valuation and/or comparison of valuation ratios with companies seen by the analyst as comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst's views on the likely course of investor sentiment. Whichever valuation method is used there is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, from changes in social values. Valuations may also be affected by changes in taxation, in exchange rates and, in certain industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, political and social conditions.
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Erste Group Research – Erste Sector Media – 25 September 2013
Disclaimer This research report was prepared by Erste Group Bank AG (”Erste Group”) or its affiliate named herein. The individual(s) involved in the preparation of the report were at the relevant time employed in Erste Group or any of its affiliates. The report was prepared for Erste Group clients. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions, forecasts and estimates herein reflect our judgment on the date of this report and are subject to change without notice. The report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may from time to time provide investment banking or consulting services to or serve as a director of a company being reported on herein. Further information on the securities referred to herein may be obtained from Erste Group upon request. Past performance is not necessarily indicative for future results and transactions in securities, options or futures can be considered risky. Any forecasts or price targets shown for companies and/or securities discussed in this document may not be achieved due to multiple risk factors including without limitation market volatility, sector volatility, corporate actions, the unavailability of complete and accurate information and/or the subsequent transpiration that underlying assumptions made by Erste Group AG or by other sources relied upon in the document were inapposite. Not all transactions are suitable for every investor. Investors should consult their advisor, to make sure that the planned investment fits into their needs and preferences and that the involved risks are fully understood. Neither Erste Group AG nor any of its respective directors, officers or employees accepts any responsibility or liability whatsoever for any expense, loss or damages arising out of or in any way connected with the use of all or any part of this document. Erste Group AG may provide hyperlinks to websites of entities mentioned in this document, however the inclusion of a link does not imply that Erste Group AG endorses, recommends or approves any material on the linked page or accessible from it. Erste Group AG does not accept responsibility whatsoever for any such material, nor for any consequences of its use. This document is for the use of the addressees only and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part, for any purpose, without the prior, written consent of Erste Group AG. The manner of distributing this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves about and to observe such restrictions. By accepting this document, a recipient hereof agrees to be bound by the foregoing limitations. 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