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Henry Zagari
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Former broker, now family money manager.
  • Fuzzy Fundamentals for TV Broadcaster CETV 0 comments
    Oct 25, 2009 11:31 PM | about stocks: CETV
    From the March lows to Dow 10,000 most companies were given a free pass on fundamentals. As the market continues to consolidate at Dow 10,000, Money Managers and Private Investors are busy weeding out the good stocks from the not-so-good stocks. Central European Media Enterprises Ltd. (NASDAQ:CETV) operates television channels in Central and Eastern Europe. The company serves the Countries of Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia, and the Ukraine. A long look at CETV’s financials following a rather downbeat Company Investor Conference held October 15th, 2009 in Prague, reveals continued fundamental difficulties that will severely hinder the Company from returning to net positive earnings.

    CETV has a lot of debt ($1.2B US) for a company its size. CETV had a huge liquidity emergency earlier this year. The sale of 30% of the company to Time Warner was necessary just to keep the company liquid. The CEO of CETV sounded apologetic when speaking at the Company Investor Conference, but the sale had to be done. (Warner got a sweet deal). Then CETV had to restructure their debt so they could avoid "come due" dates from 2009-2012. The CFO stated that the restructuring would add $39 million to interest expense, bringing total cash interest payments to $100 million for this year (2009). Earnings before interest, depreciation, taxes and amortization (EBIDA) for the year 2009 are forecast by the CFO to be between $60 and $70 million. So, there is the first problem, $70 million in EBIDA less $100 million for interest means a Net loss of more than $30 million for 2009.  The outlook for 2010-2012 doesn’t appear much brighter.

    From 2003-2007 the Countries that CETV services saw tremendous growth, with some Countries growing as much as 20%. The world recession ended that fast growth early in 2008. Central and Eastern Europe has suffered as much as any region and shares the same unemployment and consumer-spending crisis that many world economies face. Economists from JP Morgan and ING see only a 0 to 3% increase in GDP through 2012 for the countries that CETV services. The CEO of CETV is obviously seeing a brighter year ahead and predicts a 6% increase in Advertising sales (Ad sales are the core of CETV's business and are down 30% in 2009). A 6% increase in total revenues for 2010 would amount to about $40 million to the top line revenue growth. $40 million is no where near enough to get the Company back to positive earnings. 

    Focusing back to EBIDA, if we use the high forecast of $70 million for EBIDA in 2009 and award CETV with a generous 50% increase in EBIDA for 2010, that would be $105 million total EBIDA for 2010. When the same $100 million is subtracted for interest expense only $5 million is left and that will be surely eaten up by the accelerated depreciation being taken, and taxes. Since a 50% increase in EBIDA seems almost impossible to achieve, we have to look forward to at least 2012 until CETV returns to net positive earnings.

    When a TV station loses its signal, it puts up a message on the screen that reads “We are experiencing technical difficulties, please stand by”. From the investors point of view, CETV stock has a message that reads “We are experiencing fundamental difficulties, please do not stand by”.

    Disclosure: No current positions in CETV
    Themes: central europe, eastern europe, tv Stocks: CETV
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