Uralsib - CTC Media: Stock Fundamentally Cheap, But Likely To Stay Volatile - Sep 13, 2011.
Target price cut from $24 to $19/share on weaker sales outlook
Target price cut, but Buy recommendation reiterated ... We have revisited our model of CTC Media (CTCM US - Buy) following yesterday's announcement of a downward revision to the company's revenue growth outlook. Our revised DCF model - incorporating more cautious expectations on audience share and thus sales estimates - resulted in a 21% target price reduction to $19/share. Despite the downgrade, we see the stock - which has fallen 41% in the last three months - as fundamentally undervalued. CTC Media shares currently offer 71% upside to our new target price, and are trading at 2012E EV/EBITDA of 4.9 (27% below their global peers). We thus reiterate our Buy recommendation.
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a[bar] though short-term share price volatility could be high. The revenue growth outlook revision highlights not only CTC's own unimpressive audience share performance, but may also indicate expectations of weak general advertising spending in Russia in 2H11, as large advertisers could reduce their budgets on fears of an economic slowdown. As a result, in the current market environment, CTC Media stock may remain highly volatile on concerns that economic growth and private consumption in Russia this year may be weaker than expected. The company's results in the seasonally most important fourth quarter will be crucial to the market's outlook on its prospects and valuation.
Company cuts 2011 sales growth outlook from 20% to 15% ... CTC Media yesterday lowered its revenue growth outlook for 2011 from 20% to 15% in local currency terms (adjusted for changes in its sales structure in 2011, as the company switched to using its own sales house and reporting revenue on a gross basis, rather than excluding commission fees paid to Video International). The company also reiterated its OIBDA profitability guidance at 34- 36% for 2011, which corresponds to a margin of 38-40% under the previous revenue scheme.
a[bar] due to weak audience share. The company lowered it forecast sales growth due to weak audience share performance and, hence, a lower advertising inventory for CTC's TV channel, the company's core revenue generator. In 1H11, CTC's average audience share in the 4 plus target audience came to 7.8%, 0.6 ppt below the level for 2010. For comparison, we forecast an average audience share of 8.8 for CTC in 2011-15. The audience share dynamics may still change with the start of the new TV season in late September, which should be crucial for revenues in the seasonally most important fourth quarter.
Audience share and sales forecast cut. Our new model implies 16% YoY revenue growth in ruble terms to RUB24 bln ($835 mln)v in 2011E compared to 25% YoY growth to RUB26 bln ($902 mln) in our previous model (adjusted for the sales scheme). We have reduced also our estimates of the CTC TV channel's average audience share to 7.8% from 8.8% in 2012-15. As a result, we have downgraded our sales estimates by 8% on average for the period and OIBDA by 18% (adjusted for the new sales structure). Our new model implies an average OIBDA margin of 34.6% in 2012-15.
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|Publication:||Russian Banks and Brokers Reports|
|Date:||Sep 16, 2011|
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