Great Opportunity In CTC Media

CTC Media is a Russian broadcasting company that operates mainly domestically in Russia. The company operates three Russian television networks: CTC, Domashny and DTV. The company through its three networks covers approximately 100 million people. Over the last five years, the company's earnings have grown at around 8% and sells for 2.5x its earnings. The Russian broadcasting market has lots of competitors.

The company's ratings and audience shares depend largely upon the company's programming appeal. CTC Media has a 17% market share in Russia and the bulk of its revenues come from advertisement.
The company's CTC channel last year had 300 advertisers who purchased advertisements and the firm's top 10 advertiser's represents 34% of the company's total ad revenues. The company has spent the last two years increasing its technical penetration from 90% in 2009 to 95% in 2013. CTC channels has a 95% penetration level with the Russian population.

For the first three months of 2015 ending in March, the company's revenues decreased 58% to $79 million. The company's net income by decreased 73% to $8.4 million. Revenues from the company's CTC Network segment decreased 62% to $51.1 million, Domashny Network segment decreased 50% to $14 million, and Peretz channel segment decreased 62% to $7.2 million. CTC Media has no long-term debt and only has $3 million in short-term debt. The company has operating margins of 17% while the industry average is 9% and produces around $180 million in free cash flow or $1.12/share. The company has a long history of not losing any money in a given year. CTC Media has been producing positive cash flow for over 10 years now and hasn't issued a single new share in seven years.

On July 6th the company received a non-binding offer from UTH Russia to purchase up to 75% of the company. CTC board has appointed a special commitee to review the offer from UTH Russia. Th company's board and their special commitee have both reviewed the offer and will seek to negotiate final terms for the deal. CTC Media is open to the offer to purchase 75% of its company in an all cash deal of $200 million. This will unlock value for the company and increase the company's cash and marketable holding to over $300 million which will exceed its market cap.

CTC Media is selling for far less than the industry average with the company selling for 3x earnings, 2.3x EV/EBIT, P/FCF 3.4x and 0.7x book value. The company has the lowest debt-to-equity levels of its competitors. CTC Media has one of the cleanest balance sheets in the broadcasting sector with $141 million in cash and marketable securities on its balance sheet, or $0.91 per share. Currently, the company is selling for less than 2.4x operating earnings and less than 2.8x pretax earnings. The company has an operating earnings yield of 36% and a forward rate of 33%. If the company sold for 5x it's earning it would sell for $3.45/share. If the company sold for 5x operating earnings it would sell for $4.85 per share. Right now the company is experiencing short term problems caused mainly by the sanctions on Russia. The company has $743 million book value or $2.63/share which is mainly made up of assets with little to no debt and has a current market value of $296 million. CTC Media's book value exceeds market value at least 3 to 1.

There is a lot of value in CTC Media, especially selling at $1.70/share. CTC Media is profitable and half the company's market cap is made up of cash and marketable securities. Low valuations, profitability and lots of liquid assets make it a home-run investment, but make sure you understand the risk involved with investing in CTC Media.
Published on Sep 13, 2015
By Cody Eustice
Cody is a freelance writer who has been writing financial articles for various sites for over a year now. He is a value investor looking for companies that sell for far less than their estimated business value.

Copyrighted 2020. Content published with author's permission.

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