6.2x EV/EBITDA on 2019 numbers, not too far off Townsquare Media's 7.0x. Fairly low numbers. But the bigger question: is radio a sector that you'll want to be invested in, longer-term?
TSQ has fairly high capex that is around 20% of of EBITDA though. SBS it is only about 5%. SBS has ~40% EBIT margins on radio side and TSQ only ~25-30%. SBS ad revenue growth so far is also more impressive vs 2019. SBS has option to sell non core assets, although TSQ does seem to have some NOLS still, so that probably balances out. They do have similar Debt/EBIT multiples though, and TSQ only pays just over 7% on their debt.
Assuming Net debt is $470m YE 2022, TSQ EV/EBIT is about 7.6x While in my YE 2022 base and bull estimate for SBS I get a Debt/EBIT of 5-6x. Assuming they would trade at same multiple by then, upside for SBS would be between 300-500%.
As for radio in general, I wouldn't invest in the industry, but SBS has done rather well so far expanding their audience and increasing ratings. And it is cheap enough that I am not worrying too much about that for now.
Their presentation, although somewhat promotional, has decent statistics on radio usage:
Their strongest outperformance is in 18-34 age group showing 33% ratings growth (see page 21 of presentation). Generally dying industries that are geared towards consumers perform worst among young people. They outperformed every other radio company in terms of ratings, showing overal ratings growth in 2020, and it seems Hispanics use the radio more than other demographics and will show faster growth in buying power compared to the general US population.
I invested in some of these names in last downturn/recovery but the competition was tamer then (not as much podcasting). Do you think this is in terminal decline as revenues continue to decline? Do you think they will generate enough FCF to pay back debt or will they be dependent upon a favorable sale to generate positive returns for shareholders?
I think this risk is mitigated by the fact that they target Hispanics in Spanish language. And have a big focus on music. And so far the trend is up not down in the past years.
For example LaMusica had about 5 million monthly streaming hours in early '19, and in Q2 '21 this was 16 million. This has yet to be fully monetized.
Their presentation mentiones 22% YoY audience growth in radio in June 2020.
AIRE radio served 13.5 million listeners in 2014 and 15 million 2020.
Every call mentions them taking market share and increasing ratings and listener numbers with their radio stations.
So if there is a down trend it has yet to materialize. By the looks of it these guys are turning the screws on their competition, not the other way around. I would be curious what exactly they are doing to achieve these results though. Probably a result of having dominant market share among latino's, exceptional management, radio being a shared live experience and being free.
I think part of it is just the general market. For example audience and listener hours were way up in 2020, but revenue was down due to advertisers spending less due to Covid. And events revenue being zero.
But 2019 radio revenue was up over past 5 3 & 1 year. And Q2 2021 radio revenue was up over Q2 2019 revenue. And if you look at the Q2 call, it appears Q3 2021 is by far going to be the company's best quarter as the COO indicated they had reached Q3 2019 radio revenue's already 2 months into the quarter. And seemed really really excited.
So I think a portion of it is that they have not fully monetized their audience reach, and it does appear that signing up with Katz for their AIRE network has significantly improved this (see also Q1 call). Possibly the debt overhang and negotiations with pref holders were also a distraction/hurt the company? And that is now gone as well.
Also note that the actual advertising revenue shows a nice trend the past few years (apart from Covid 2020) since they started splitting that out:
2017: $133m
2018: $144m
2019: $154m
2020: $124m
TTM: $154m
And the trailing twelve months include basically zero revenue from special events (due to Covid, I guess), as opposed to almost $10m in 2019. Not sure about the margin of these events (the numbers actually suggest they are pretty decent) but that's a decent revenue boost that will probably kick in soon because this revenue is included in their Radio and TV segments.
Obviously hard to predict the future but if the advertising revenue trend continues and on top of that you add $10m+ in events revenue, well, I can see why management would be optimistic.
What I'm a bit worried about though is that the March 4 press release explicitly states that they can retire 40% of their debt at any time using proceeds from an equity offering. Do you reckon that that could be in the cards at some point?
Also note that their Miami HQ was on Loopnet for a while:
They are planning to do live shows every month this year. So that could be a nice tail wind. I heard $20-30m a year for live events. Not sure about margins though.
And they were talking about their AIRE network a few years ago already, how it has significant untapped earnings power, and has a lot of operating leverage.
As for dillution, I think that is an extreme move, especially given the low share price. Alarcon would probably sell off the TV segment before doing that. Possibly the hardware (broadcasting towers) are worth in the tens of millions. It doesn't make a whole lot of sense to hold on to that if it can be sold for $40-50m. It doesn't really seem like a core asset where they are very strong, like in Radio and events. But they are probably waiting for a strong political year in 2022. And they cannot pay down debt anyway before 2023:
"As you know, the call premium is a little pricey. We are in a transition period of the digital era. So we are looking at certain divisions of ours to ramp up, which should be very accretive to EBITDA, including, as we spoke about, the entertainment division. So we are going to reinvest in certain divisions where we think we must invest for the future of this company.
In addition to that, lower leverage from building EBITDA and building cash. And looking forward to September -- I want to say September 1, 2023, just hopefully do something. That's the quickest we can call."
I am probably a bit biased on this stock at this point though :).
6.2x EV/EBITDA on 2019 numbers, not too far off Townsquare Media's 7.0x. Fairly low numbers. But the bigger question: is radio a sector that you'll want to be invested in, longer-term?
TSQ has fairly high capex that is around 20% of of EBITDA though. SBS it is only about 5%. SBS has ~40% EBIT margins on radio side and TSQ only ~25-30%. SBS ad revenue growth so far is also more impressive vs 2019. SBS has option to sell non core assets, although TSQ does seem to have some NOLS still, so that probably balances out. They do have similar Debt/EBIT multiples though, and TSQ only pays just over 7% on their debt.
Assuming Net debt is $470m YE 2022, TSQ EV/EBIT is about 7.6x While in my YE 2022 base and bull estimate for SBS I get a Debt/EBIT of 5-6x. Assuming they would trade at same multiple by then, upside for SBS would be between 300-500%.
As for radio in general, I wouldn't invest in the industry, but SBS has done rather well so far expanding their audience and increasing ratings. And it is cheap enough that I am not worrying too much about that for now.
Their presentation, although somewhat promotional, has decent statistics on radio usage:
https://www.spanishbroadcasting.com/wp-content/uploads/sites/5/2020/09/SBS-Investor-Presentation-October-2020.pdf
Their strongest outperformance is in 18-34 age group showing 33% ratings growth (see page 21 of presentation). Generally dying industries that are geared towards consumers perform worst among young people. They outperformed every other radio company in terms of ratings, showing overal ratings growth in 2020, and it seems Hispanics use the radio more than other demographics and will show faster growth in buying power compared to the general US population.
Thanks for your long answer IJW. It does look quite inexpensive
I invested in some of these names in last downturn/recovery but the competition was tamer then (not as much podcasting). Do you think this is in terminal decline as revenues continue to decline? Do you think they will generate enough FCF to pay back debt or will they be dependent upon a favorable sale to generate positive returns for shareholders?
I think this risk is mitigated by the fact that they target Hispanics in Spanish language. And have a big focus on music. And so far the trend is up not down in the past years.
For example LaMusica had about 5 million monthly streaming hours in early '19, and in Q2 '21 this was 16 million. This has yet to be fully monetized.
Their presentation mentiones 22% YoY audience growth in radio in June 2020.
AIRE radio served 13.5 million listeners in 2014 and 15 million 2020.
Every call mentions them taking market share and increasing ratings and listener numbers with their radio stations.
So if there is a down trend it has yet to materialize. By the looks of it these guys are turning the screws on their competition, not the other way around. I would be curious what exactly they are doing to achieve these results though. Probably a result of having dominant market share among latino's, exceptional management, radio being a shared live experience and being free.
https://deloitte.wsj.com/articles/radio-retains-its-appeal-for-consumers-advertisers-01553734927
Why has revenue gone down then over the past 5, 3 & 1 year? Streaming time has gone up but it sounds like ARPU has more than offset this decline.
To be more specific revenue have declined from 2019 levels. TIA.
I think part of it is just the general market. For example audience and listener hours were way up in 2020, but revenue was down due to advertisers spending less due to Covid. And events revenue being zero.
But 2019 radio revenue was up over past 5 3 & 1 year. And Q2 2021 radio revenue was up over Q2 2019 revenue. And if you look at the Q2 call, it appears Q3 2021 is by far going to be the company's best quarter as the COO indicated they had reached Q3 2019 radio revenue's already 2 months into the quarter. And seemed really really excited.
So I think a portion of it is that they have not fully monetized their audience reach, and it does appear that signing up with Katz for their AIRE network has significantly improved this (see also Q1 call). Possibly the debt overhang and negotiations with pref holders were also a distraction/hurt the company? And that is now gone as well.
Also note that the actual advertising revenue shows a nice trend the past few years (apart from Covid 2020) since they started splitting that out:
2017: $133m
2018: $144m
2019: $154m
2020: $124m
TTM: $154m
And the trailing twelve months include basically zero revenue from special events (due to Covid, I guess), as opposed to almost $10m in 2019. Not sure about the margin of these events (the numbers actually suggest they are pretty decent) but that's a decent revenue boost that will probably kick in soon because this revenue is included in their Radio and TV segments.
Obviously hard to predict the future but if the advertising revenue trend continues and on top of that you add $10m+ in events revenue, well, I can see why management would be optimistic.
What I'm a bit worried about though is that the March 4 press release explicitly states that they can retire 40% of their debt at any time using proceeds from an equity offering. Do you reckon that that could be in the cards at some point?
Also note that their Miami HQ was on Loopnet for a while:
https://images1.loopnet.com/d2/Wf8Z-oSK55YXuMoGUuT7Hvnn45cu3rK8VMHQGy_IpP0/document.pdf
Triple net lease construction, $975k rent. Tax appraisal of the property and land ~$11m. Looks like that is something they are still pursuing.
Thanks for writing this up. Interesting idea.
They are planning to do live shows every month this year. So that could be a nice tail wind. I heard $20-30m a year for live events. Not sure about margins though.
And they were talking about their AIRE network a few years ago already, how it has significant untapped earnings power, and has a lot of operating leverage.
As for dillution, I think that is an extreme move, especially given the low share price. Alarcon would probably sell off the TV segment before doing that. Possibly the hardware (broadcasting towers) are worth in the tens of millions. It doesn't make a whole lot of sense to hold on to that if it can be sold for $40-50m. It doesn't really seem like a core asset where they are very strong, like in Radio and events. But they are probably waiting for a strong political year in 2022. And they cannot pay down debt anyway before 2023:
"As you know, the call premium is a little pricey. We are in a transition period of the digital era. So we are looking at certain divisions of ours to ramp up, which should be very accretive to EBITDA, including, as we spoke about, the entertainment division. So we are going to reinvest in certain divisions where we think we must invest for the future of this company.
In addition to that, lower leverage from building EBITDA and building cash. And looking forward to September -- I want to say September 1, 2023, just hopefully do something. That's the quickest we can call."
I am probably a bit biased on this stock at this point though :).