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Saga Communications: Deep Value Play With Strong Operating History

Mar. 09, 2021 12:57 PM ETSaga Communications, Inc. (SGA) Stock5 Comments
Almyra Research profile picture
Almyra Research



Saga Communications (NASDAQ:SGA), founded in 1986 and headquartered in Michigan (US), is a radio broadcaster operating in 27 markets via its 79 FM and 34 AM company-owned radio stations and 77 metro signals. SGA is a strong local operator with top-end rankings in the markets that operates. SGA sold its remaining TV stations in 2017 and is now focused solely on radio broadcasting.


  • 87% of revenues generated by local advertising. CEO prefers to work directly with local companies than be dependent upon intermediaries. That is only possible in local advertising market.
  • Advertising revenues comes from auto dealerships, farming, medical and home improvement industries.
  • Most advertising contracts are short-term in nature and run for a few weeks.

Management & Strategy

Ed Christian (Founder & CEO) is considered an industry expert and has grown SGA from 8 stations in 1986 to over 100 today. Mr Christian and Sam Bush (CFO) are significant shareholders. Mr Christian is the second largest shareholder but controls 60% of voting shares via Class B shares. CEO has voting control of SGA via super-voting Class B shares but he looks like he has treated shareholder well over company's history.

CEO tends to look SGA business as a brand development platform. Radio business is in a transformative phase but SGA will always play for the long ball. CEO is focusing on building more relationships with local businesses and working with them to build their brands and image through radio.

Financial Performance

Over the last 10 Years, SGA has kept its top line steady at c. $124m and its Gross Profit margin broadly steady at 26.4%. SG&A costs have popped after FY14, from an 5-year average of 6.2% of Sales to 9.3%. OpEx increase is attributed to a multi-year contract agreement to license historic Nielsen data in selected markets in conjunction with entering

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Almyra Research profile picture
Most people do not understand that wealth accumulation is a slow and meticulous process. Speculation, as opposed to long-term investing, is probably the quickest road to wealth destruction. I tend to see short-termism as industry standard bias that guarantees under-performance. No one can really tell what lies ahead. Successful investment managers study investment history, dive deep into business models and try to see just a bit into the future when the opportunity offers a sufficient risk/reward ratio. They probably do not have a better crystal ball than the rest of the industry but they are good at underwriting risk, discounting noise and focusing on good businesses with a promising story. Investing is a game of probabilities. Value doesn’t come from models but from stories. Investors are attempting to divine the future and some futures have a higher probability of correct divination than others.

Analyst’s Disclosure: I am/we are long SGA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

Risk0 profile picture
VG note
only q i have is whether it has party transitioned to the net as the competitors appear to have done, & indeed made a point of accelerating this past year.
Dimitrios Koutsoumpos profile picture
Konstantinos, congrats for the insightful article!
I like the way you think and analyze the company.If I was almost sure that they will continue to have their cash streams, I would find the valuation interesting. Since, they might follow the newspaper's paradigm, I would demand a greater upside potential, and a higher margin of safety.

I think that the power and prospects of local ads over the internet is not understood yet. If businesses realized how efficient, targeted and cheap can local ads be on the internet, will massively exit the local traditional advertising.It will just take some time for this trend to go local. What I would hope is they could move their ability and capacity for producing local content over the internet. Otherwise, I don't believe that they will be able to keep their earnings.So, I am not buying the stock, but I wish SeekingAlpha had more articles like yours, insightful and which connecting the story, with the value, and the stock price.
Almyra Research profile picture
@Dimitrios Koutsoubos Thank you for your feedback. 

Market relevance is indeed a very interesting point. One could argue that radio stations are doomed to fail. Hence producing local content over the internet could be a logical next step. However there are two counter-arguments that make me feel that even in this changing environment, SGA has still a role to play.

1) I have a subscription for both Spotify and Apple Music but when I drive my car I still listen to my favourite radio stations. It's a bit old school and relaxing with a dose of surprise. We might still need that..

2) Spotify and other streaming services follow a more commoditised, bulk-buying approach when it comes to advertising. SGA creates personalised campaigns for the local market. We are not talking about NY and Los Angeles here but for Milwaukee and Ithaca. Local businesses in these slower moving cities might need someone to care about the adv content. 

3) Even if we all agree that the radio station business is going down, is hard for me to accept that this is imminent. The migration from radio stations to streaming services is happening but is not as fast as we think particularly for older generations. If SGA still exists in 10 years it would probably be a different business. However I believe that it has more than 5 years of life. Plus it has $38m in cash. Given the conservative management, what is the risk really?

While I am not sure how this story will play out, I feel that we have a protected downside and a significant upside potential. From my experience, this asymmetric risk/reward profile is on average very rewarding.
Dimitrios Koutsoumpos profile picture
@Almyra Research
I agree with you that people will still use radio for a while.

My point is that the ads will be worth less, since targeting the absolutely appropriate audience is impossible.So, in my view, it's not that people will stop appreciate radio, but the advertisers who will realize the economic deficiencies, when there is a better alternative.So, less ads on radio, in volume and price, will initially hit profitability. When this becomes widespread, the budgets will go south. Consequently, the quality of radio will decrease and local internet alternatives' revenue & budget (podcasts, youtube channels, websites) will increase. This will finally make people switch. But the economic pressure will be seen much earlier.
Maybe the best for those media companies is to use their current status and popularity to go digital as soon as possible.
Almyra Research profile picture
@Dimitrios Koutsoubos It's a head-I-win-tail-I-don't-lose-much kind of opportunity. Let's agree on that :)
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