Known for its wildly popular telenovelas, or prime-time romantic melodramas, spanish-language media power Univision beat bigger English-language rivals ABC, CBS, NBC, and Fox as the most watched in the month of July by the most coveted 18-49-year-old viewers

SATURDAY, AUGUST 17, 2013

A Terrific Story of Its Own

By SANDRA WARD | MORE ARTICLES BY AUTHOR

Grupo Televisa, a global power in Spanish-language TV melodramas, offers a lot to investors, including a big stake in Univision.

For the first time, the television network most watched in the month of July by the most coveted viewers — 18-to-49-year-olds — was the Spanish-language broadcaster, Univision Communications. ¡Que!

Known for its wildly popular telenovelas, or prime-time romantic melodramas, and its variety shows and sports programs, upstart Univision beat bigger English-language rivals ABC, CBS, NBC, and Fox. Univision and its original programming benefited from those broadcasters’ heavy reliance on summer reruns, and the absence of regular NFL games, which won’t resume until September. Still, the fifth-ranked broadcaster in terms of overall viewers is making inroads. It’s the only major broadcaster attracting new viewers — and for the first time ever in any first quarter, Univision was No. 4 among the 18-to-34 set, ahead of NBC.In another first, Univision ranked No. 1 among 18-49-year-olds on Friday nights in the first quarter, well ahead of No. 2 ABC. As Hispanic America’s favorite broadcaster, the privately held, Manhattan-based Univision is in a sweet spot. Called the “new influentials,” Hispanics equal 17% of the U.S. population and have accounted for more than 55% of its growth since 2000. Advertisers increasingly are courting them.

This is great news for shareholders ofGrupo Televisa (ticker: TV). The Mexico City–based media conglomerate owns 38% of Univision. It also produces those beloved telenovelas, including the hit Que Bonito Amor, about a Los Angeles car dealer, falsely accused of money-laundering, who finds love under a new identity as a mariachi singer in Mexico. Many expect Univision, which was taken private in 2007 by investors including its chairman, Haim Saban, Madison Dearborn Partners, and Providence Equity Partners, to go public again in a few years, a potential bonanza for Televisa.

“Univision is an enormous hidden asset” of Grupo Televisa, says Larry Haverty, portfolio manager of the Gabelli Multimedia Trust closed-end fund, which owns Televisa shares. He sees them hitting $35 if Univision goes public — 27% above the recent quote of $27.50.

Televisa’s shares could hit $35, 27% above its recent quote, if Univision goes public.

With an average weekday prime-time audience share of a whopping 70%, Televisa is Mexico’s largest TV broadcaster. Its four main networks generate almost half of its operating profits, which totaled roughly $1.4 billion last year. It’s also the globe’s largest provider of Spanish-language content, followed by TV Azteca and the Telemundo unit ofComcast (CMCSA), exporting programming to 50 countries.

Using the enormous cash flow generated by its broadcasting side, Televisa has become a force in the pay-TV market, as well. Cable and satellite contribute about one-third of total operating profits, generate a recurring revenue stream, and boast strong growth potential. Through Sky Mexico, a direct-to-home satellite venture with DirecTV (DTV), as well as stakes in cable firms Cablevision(CVC), Cablemas, and TVI, Televisa’s share of its homeland’s pay-TV market is about 75%. The media giant also has a 50% stake, acquired last summer, in cellphone provider Iusacell.

Total revenue has been steadily rising and should hit about $5.7 billion this year, up from $5.4 billion in 2012. Profits should come in at $1.20 a share in 2014, up from $1.13 this year. Last year, the company earned $1.17.

Mexico is striving to be more attractive to foreign investors. And, says Christopher Marangi, a Gabelli & Co. analyst: “Televisa will be a surrogate for growth in Mexico.”

Worth a Look

With strong cash flows and solid prospects, Televisa looks cheap.

GRUPO TELEVISA / TV
Recent Price $27.50
52-Week Chg 17%
Market Val (bil) $15.8
EPS 2013E $1.13
EPS 2014E $1.20
P/E 2014E 22.9
EV/EBITDA 2013E 7.0
E=Estimate Source: Thomson Reuters

Televisa’s shares look cheap, compared with those of other content-rich media outfits such as Walt Disney (DIS),Twenty-First Century Fox (FOXA),Discovery Communications (DISCA), and CBS (CBS). Televisa fetches about seven times enterprise value to Ebitda (earnings before interest, taxes, depreciation, and amortization), while its peers trade at 10 times or more. Comcast, in contrast, commands about 7.5 times EV/Ebitda.

Televisa is Morgan Stanley analyst Michael Morin’s top pick among Latin American tech, media, and telecom stocks. He argues that the shares would be fairly valued at $32 on a sum-of-the-parts basis and possibly as much as $41 if Iusacell narrows its losses, Univision’s ratings keep rising, and Univision’s debt load is shrinking. Morin suggests that Televisa also may boost its Univision stake above 50%.

Weighing on Televisa is concern about reforms aimed at adding competition in Mexico’s telecom and media markets. New rules obligating it to distribute its over-the-air channels to pay-TV providers without charging retransmission fees will crimp revenue. Still, with Televisa’s large grip of the pay-TV base, the rules are likely to lower its costs and boost margins. And if two new national broadcast networks are created, as currently envisioned, they’ll need programming, and Televisa could sell them some of it. And telecom reform probably will enhance the value of Televisa’s investment in Iusacell, at the expense of Carlos Slim’s American Movil (AMX), which now dominates Mexico’s mobile and fixed-line networks.

Viva la Televisa!

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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