Christian Media Company Targeting Growing Market.

IT may not own the nation's largest radio network, but Salem Communications Corp. has been successful targeting a market estimated to be worth more than $3 billion annually.

The Camarillo-based Christian multimedia company's core business is owning and operating radio stations. Founded almost three decades ago, Salem today is filling the airwaves and cyberspace with around-the-clock programming designed to meet the spiritual and informational needs of the nation's estimated 30 million Christian conservatives.

Analysts expect the company's shares to get a boost from increases in advertising and block-programming revenues, along with the expected profitability of its Internet business.

Since going public in July 1999 at $22.50 a share, Salem's stock has been on a roller-coaster ride, dropping to a 52-week low of $6.12 last April after closing as high as $30 in October 1999.

As of last week, the stock was trading at slightly above $15 a share.

"Salem shares present a compelling buy, as I believe that they should trade at a multiple closer to their peers," said James M. Marsh of Prudential Securities Inc. "In particular, the shares will trade at a multiple closer to its (annual revenue) growth rate of 14 to 15 percent."

Marsh is projecting a 12-month price target of $25.

Mark O'Brien,. vice president of BIA Financial Network in Chantilly, Va., said Salem shares took a beating last year because the company purchased a number of expensive radio stations in large markets.

"Investors were concerned that flipping all those stations (to a Christian format) would hurt revenues," he said. "They were also concerned that Salem was only growing (revenues) by 10 percent during the first half of the year, while other radio companies were growing by 20 percent."

O'Brien expects Salem's revenue growth to begin accelerating, however, as it begins attracting more advertisers eager to sell to the Christian market. Many of the stations have been reformatted to feature talk, music or religious programming.

The consumer spending power of the Christian market is huge, meaning Salem has plenty of advertisers eager to access its audience. The Christian retail industry, including books and music, generated an estimated $3.5 billion in revenues during 2000, said Brandt Gustavson, president of the Manassas, Va.-based trade group National Religious Broadcasters.

Salem currently owns and/or operates 76 stations nationwide, including 54 stations in the top 25 markets, with plans to acquire additional stations and integrate those with its multimedia assets. For example, listeners can log Onto a Salem-owned radio station's Web site and follow a link to a Salem-owned publication or online ministry.

David Evans, Salem's chief financial officer, said the company purchased 20 stations in 2000, with four more deals expected to close in the first half of this year.

"We need to continue to improve our new stations in a effort to grow their revenues," he said. 'These stations represent a large portion of our portfolio."

Salem's six Los Angeles properties include KRLA-AM (870), formerly KIEV-AM, and KKLA-FM (99.5).

While Salem does not expect to release its fourth-quarter and year-end 2000 financial results until March, the company is projecting broadcast revenues of $138 million for the year, with 55 percent of that coming from advertising, and the rest coming from block-programming sales. (Block programming is similar to infomercials, in that a third-party entity, in this case a religious-oriented party, buys a block of air time--typically 15 or 30 minutes -- and then airs their own programming.)

"Our (spot) advertising sales will gradually increase over the next few years because we have launched a number of music and talk stations that are 100 percent driven by advertising," said Evans.

Much of that spot advertising growth is being attracted by Salem's "Contemporary Christian" music format, essentially light rock with a religious message targeted to a young audience.

Besides its radio stations, the company operates Salem Radio Network, which syndicates programming to more than 1,300 stations nationwide.

                        Salem Communications Corp.
YEAR (Dec.31)                    1999    1998
Revenue (millions)              $93.5   $77.9
Operating Expenses (millions)    85.5      64
Operating Income (millions)       8.0    13.9
Net Loss (millions)             (8.0)   (1.6)
LOSS Per Share                ($0.40) ($0.09)

SUMMARY

Business: Religious radio broadcaster

Headquarters: Camarillo

CEO: Edward G. Atsinger III

Market Cap: $360.6 million

Dividend Yield: N/A [*]

Total Liabilities: $318 million

P/E Ratio: 24.4

Long-Term Debt: $289 million