Prisa (NYSE: OTCPK:PRISY) is a large company from Spain that conducts business in the newspaper, radio, television and educational publishing industry. It is mainly active in Spain, Portugal and Latin America. Management announced a large restructuring process last year. Its main intention was the fundamental improvement of Prisa's debt structure.
Originally, two versions of common shares traded on the exchanges. A mandatory conversion in spring 2014 led to only one remaining common stock. The price charts show a terrible year for investors so far. A decline of more than 50% was seen until October. Over a longer perspective it becomes clear that the market has had little mercy for investors over the last couple of years.
The historic perspective reveals that Prisa is relatively cheap at the current price. We will therefore try to find out if the market's low valuation of the business is accurate.
News and Analysis
The company's last quarterly results look promising in various terms. Prisa's performance improved in most parties of the business model, both by functional and geographical means. Even as the market environment stays problematic in Spain, Portugal and Latin America, revenue streams are generally stable. However, the decline of local currencies in the latter region has resulted in reported losses for the year-to-date statement. The table below shows the difference and effect between constant and real currency. We should also mention that due to the ongoing restructuring of the company, a lot of non recurring items are affecting Prisa's accounts. Hence, it is problematic to compare the quarterly results numerically.
(Source: Prisa Q3 report)
The sale of a 56% stake Canal+ to Telefonica (NYSE:TEF) is finalized and is only awaiting approval from market authorities. This transaction will yield around 750 million EUR ($935 million USD) for Prisa.
Management has stated its optimism to meet the milestones for the financial re-structuring of the company possibly earlier then expected. 1.5 billion EUR of debt should be amortized. The company held 3.3 billion EUR in debt one year ago. The September 2014 results show a steep decline to 2.6 billion EUR.
Based on these numbers, the reduction of debt through the strategic sale of assets seems to work out very well.
The other part of the equation, namely straight cost control, shows first successes as well. Prisa cut its total operating costs by more than 6%. Focusing on investment and spending activities, these parts of the business seem to provide the best growth opportunities. Santillana, the (digital) publishing platform for educational use, is the company's outstanding example.
Furthermore, we can observe the transformation of Prisa's business towards digital content and services. We think this is a strategically necessary move to ensure the company's future profitability.
We believe that the company is cheap based on all fundamental ratios. At current prices, Prisa trades below book value. While the earnings per share are currently negative, the market price is below two times its operational cash flow. The large diversified structure of Prisa's business model should shield the company against unfavourable market conditions. As a market leader, especially in the mentioned areas of potential growth, the long term outlook for the company is generally positive.
We don't know when Prisa will show positive earnings again, but the ongoing processes will enable shareholders to benefit from additional leverage. From what the numbers indicate, we can see that Prisa is likely through the worst and ugliest part of the re-structuring. The positive outlook is not yet fully reflected in Prisa's share price.
Investors should watch the news around the company. Positive earnings next year will likely lead to a more appropriate valuation of the business. If the market conditions improve as expected, further positive catalysts seem to be within range for investors.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.