CTCM - CTC Media

[blainehodder]

CTC Media is basically a large Russian network operator. They run 3 networks - CTC, Domashny, and DTV.

 

You can read a case about the company offerings elsewhere.

 

What I find enticing about this company, is the dirt cheap price, combined with impressive annual growth.  Trading with an EBIT/EV yield of around 16%, you get the 10 year revenue CAGR on pretty much infinite returns on tangible capital. PE of 9. Dividend yield of 6.4%. ADR listed.  I'm no Russian expert but this seems like a very good deal. I think I will buy a small position here. I'm pretty sure the Ukraine situation will not matter to CTC cash flow.

 

http://www.gurufocus.com/financials.php?symbol=CTCM

 

What am I missing here? What is the competition like from Channel One, Rossiya, and NTV?  Any thoughts? Hopefully Packer, our resident Malone has some insights!

[Packer16]

I don't hold a candle to Malone but I have looked at CTC.  It is nicely integrated television company but if I apply a 9x EBITDA multiple to CTC's EBITDA the upside is about 60%.  The nice thing about Russia media is its pretty parochial so outsiders have a tough time competing.  The main competition here are the state broadcasters and Gazprom.  I get an EBITDA multiple of 5.5x and a FCF multiple of about 11x.  The comes with historic EBITDA growth of about 7% EBITDA growth rate over the past 4 years.  US Broadcasters are at 10 to 12x EBITDA (which I think is a rich valuation).  This is a cheap valuation but this is Russia also so given the risk in Russia and how much cheaper O&G firms such as Lukoil are, I prefer Lukoil. 

 

Packer

[jouni1]

these might get a lot cheaper with talks of russia nationalizing us and eu holdings in response to economic sanctions.

 

i feel the safest bet would be something non-strategic. i'm under the impression that media in russia is pretty much controlled by the state so staying profitable and growing is up to the power-hungry politicians. CTC has a large western shareholder(MTG AB at 39%) though, so that might help. it didn't help tnk-bp, and can be both a positive or a negative.

[Poor Charlie]

Anybody taking a look at CTC at these levels.  My thinking is as follows:

 

-Large amounts of technical selling due to the new foreign ownership rules. 

 

-Priced at 3-4x EV/EBITDA and 5-6x EV/FCF (assuming a Ruble in mid 30s).  Business does not have large capital requirements and has generated cash equivalent to the EV since 2009.  They have returned (dividends/buybacks) more than half their EV since 2010. 

 

-No liquidity issues.  Company will likely have net cash of $175m by YE.

 

-Large Western shareholder (Modern Times Group owns 39%) with influence at the board level in the same boat.

 

-2016 deadline to resolve the foreign ownership issues.  Dilution/takeunder are risks but given the lack of immediate time constraints I expect a more favorable outcome. 

 

[shhughes1116]

I looked at this company a few months ago, around the peak of the Crimea/Ukraine situation.  Looked interesting, and reasonably priced based upon previous growth.  However, I never pulled the trigger...I have trouble getting comfortable with companies domiciled in Russia.  The lack of property rights (or at least the lack of respect for property rights) means that your returns are dependent upon the company performing well AND staying in the good graces of the Kremlin. 

 

A good example is provided at the following link: http://valueandopportunity.com/2014/09/17/sistema-update-general-thoughts-on-russian-stocks/

 

 

[berkshire101]

Anyone looking at CTCM below $4.00?  It looks like the dividend is well covered.  Management is competent and the industry itself is fairly stable. 

[pocoapoco]

Anyone looking at CTCM below $4.00?  It looks like the dividend is well covered.  Management is competent and the industry itself is fairly stable.

 

The problem with CTCM is the foreign ownership issues/legislation.  We don't know how that's going to get resolved.

[Guest brisbane]

The nice thing about Russia media is its pretty parochial so outsiders have a tough time competing.  The main competition here are the state broadcasters and Gazprom.

 

This is *precisely* the problem with CTC. It sticks out like a sore thumb among its competition, and not for good reasons. Russia's already capriciously introduced its foreign ownership cap -- given the country's dire financial straits, who's to say a strong-armed nationalization isn't next? As far as I'm concerned, unquantifiable political risk is a categorical dealbreaker. A lesson learned in retrospect only.

 

For what it's worth, I bought CTCM back in the 8s, so I'm somewhat bitter about the bad luck I've had (sold on a dead cat bounce in the 6s, though). However, I bought it for the exact same reason people are calling it attractive in the 4s...

[kirkomi]

However, I bought it for the exact same reason people are calling it attractive in the 4s...

 

+1. Fortunately, I sold after a day of buying the company. Government regulation risk makes me very uncomfortable. I learned my lessons after taking my losses in Fortress Paper.

 

The Russian's play I have are ITC, QIWI and Lukoil.

[GregS]

I looked into CTCM last year but decided investing in a country that doesn't respect capital or the rule of law is a bridge I won't cross.

[rpadebet]

Anyone looking at CTCM below $4.00?  It looks like the dividend is well covered.  Management is competent and the industry itself is fairly stable.

 

I doubt the dividend is covered. Their revenues are in rubles and they pay dividends in dollars. The drop in ruble since last few quarters makes the dividend maintenance at this level risky.

[Packer16]

The dividend is covered with 2014 EPS.  In addition, FCF has been about 25% greater than EPS.  Using estimated FCF, the dividend will be covered 2014 and 2015.  Last year payout was about 70% of EPS so using that metric the dividend for 2015 should be about $0.56.

 

Packer

[ATLValue]

Honestly, dividend coverage here is really overwhelmed by the political uncertainty that has impacted the stock. The main driver for this stock will be political actions by the Russian government. CTCM provided some detail in their 10Q risk section which highlights the risks that have developed over the last year.

 

---

 

Amendment to Mass Media law —On October 14, 2014, President Putin signed an amendment to the Russian law "On Mass Media", which will reduce the permitted level of foreign ownership in Russian mass media companies, including television broadcasters, from 50% direct ownership to 20% beneficial ownership, direct or indirect. The law does not provide for "grandfathering" of existing foreign ownership interests. The law will come into force on January 1, 2016, by which time each Russian mass media entity, including television broadcasters, must comply with the requirement that non-Russian entities and individuals in the aggregate beneficially own no greater than 20% of the relevant mass media entity. Russian entities and individuals that beneficially own interests in Russian mass media businesses greater than 20% through off-shore holding structures will have an additional year in which to restructure such foreign holding structures. In the event of non-compliance by the stated deadline, the Russian government would have the authority, among other things, to revoke the mass media registration and broadcasting licenses of our business.

 

CTC Media is a Delaware corporation that directly and indirectly owns 100% of the shares of a series of Russian legal entities that operate the CTC business in Russia. CTC Media's stockholders include MTG Russia AB, a Swedish company that is 100% indirectly owned by Modern Times Group MTG AB, a Swedish listed company, which holds approximately 39% of CTCM's common stock; Telcrest Investments Limited, a Cypriot limited company that we understand is indirectly beneficially owned by Russian entities and individuals, which holds approximately 25% of CTCM's common stock; and a number of public stockholders, which we understand include numerous US and European investors, which together holder the remaining approximately 36% of CTCM's common stock. If we are unable to take steps to restructure our operations in such a way that achieves compliance with this law while retaining our current ownership structure, we may be required to an effect a sale of 80 or more of our Russian businesses. See also "Item 1A. Risk Factors—Recently adopted amendments to the Russian law "On Mass Media" will further limit foreign ownership of Russian television broadcasters, which is likely to require a significant change in the ownership structure of our business, and may materially adversely affect our operations and/or our stockholders".

 

The enactment of this law creates uncertainty regarding our corporate structure, ownership and operations after this law comes into force. Our Board of Directors has formed an Advisory Committee to review all potential responses to the enactment of this law, which may include corporate restructuring, franchising and licensing structures, capital reorganization or divestments. Any actions in response to this amendment are likely to require significant Board and management time and attention, which will distract from the normal operations of our business. Any such actions may also result in significant changes to our corporate structure. If we are unable to take steps to restructure our operations in such a way that permits us to achieve compliance with this law while retaining our current ownership structure, we may be required to effect a sale of 80 percent or more of our Russian businesses. Any such sale may not result in proceeds at a level that reflects the underlying value of our business, particularly as the pool of potential purchasers would be limited to Russian persons that are not subject to applicable international sanctions. As a result, the value of the common stock of our company could further decline, and you may lose all or a significant portion of your investment.

 

In addition, our Board of Directors may pursue options to restructure our group to comply with the restrictions of this law that may result in the group being required to pay significant taxes, in particular in connection with complex corporate transactions in which the application of tax laws may be unclear.

 

---

 

So the options seem to be:

1. Do nothing and company loses media license

2. Corporate restructuring

3. Franchising

4. Licensing structure

5. Capital reorganization

6. Divestment

7. 80% – 100% Sale to a Russian entity

 

This political action has resulted in a completely binary situation. For me this stock is uninvestable until management has announced a proposed solution. Even though this company is EXTREMELY cheap, the possibility of a complete loss of principal is very real.

 

[Guest notorious546]

for what its worth, Mittleman brothers have disclosed a new stake in the company

 

http://www.sec.gov/Archives/edgar/data/1456827/000145682715000002/xslForm13F_X01/infotable.xml

 

Not sure i can agree with them given all the political risk. that 10Q has me scared.

[one-foot-hurdles]

for what its worth, Mittleman brothers have disclosed a new stake in the company

 

http://www.sec.gov/Archives/edgar/data/1456827/000145682715000002/xslForm13F_X01/infotable.xml

 

Not sure i can agree with them given all the political risk. that 10Q has me scared.

 

CTCM now represents abt 4% of their holdings. They also own Gazprom. About 10% exposure to Russia in total which I think represents significant conviction.

[InsecurityAnalysis]

Holding a Russian company like Gazprom is one thing. But holding a Delaware registered corporation like CTCM, which runs the risk of non-compliance of russian law, is another thing all together.

Seems like they are using the "go big or go home" mantra.

[Homestead31]

 

 

at the moment i am looking at this as a ~82% (ie 100%-one year of dividends) downside vs 400-500% upside trade (if the Russian gov't were to drop the ownership restrictions).

 

in reality, the downside is likely less than 82% b/c in the event of a seizure (which would be worst case scenario), shareholders would likely get something, although it may be awhile (the Yukoil case is still being appealed ~10 years later, YPF shareholders got compensated by Argentina...  if you have other examples, please chime in)

 

 

[mcmaaaaath]

 

 

at the moment i am looking at this as a ~82% (ie 100%-one year of dividends) downside vs 400-500% upside trade (if the Russian gov't were to drop the ownership restrictions).

 

in reality, the downside is likely less than 82% b/c in the event of a seizure (which would be worst case scenario), shareholders would likely get something, although it may be awhile (the Yukoil case is still being appealed ~10 years later, YPF shareholders got compensated by Argentina...  if you have other examples, please chime in)

 

Sistema is an example-- shareholders got nothing for Bashneft so far, but are trying to get ~$1B USD in damages from the original owner.

[ATLValue]

Company has really been hit hard the last few days and now they have also suspended their dividend. I would be interested in buying some speculative calls at this point but other than that the uncertainty reigns supreme

[phil_Buffett]

http://www.ctcmedia.ru/press-center/releases/?id=4861#.VczFgu_ovs0

 

what are your thoughts?

[rpadebet]

http://www.ctcmedia.ru/press-center/releases/?id=4861#.VczFgu_ovs0

 

what are your thoughts?

 

Basically about 20-25% upside from here if the proposed offer to buy 75% is taken up. Who knows when and how likely that it will close on those terms. What happens to the Ruble meanwhile and how badly the Russian economy and advertising revenues deteriorate?

 

In my opinion, reward not worth the risk at this point. Need a 100% upside at least to make this bet. I will take a look if/when it trades near $1

[Guest Schwab711]

http://www.bloomberg.com/news/articles/2015-01-30/discovery-among-pay-tv-firms-hit-by-russian-ban-on-advertising

http://www.broadbandtvnews.com/2015/02/26/crisis-hits-russian-tv-ad-market/

http://www.broadbandtvnews.com/2015/05/18/major-change-in-russian-tv-ad-market/

https://www.washingtonpost.com/world/europe/russian-advertising-ban-on-paid-cable-and-satellite-channels-threatens-independents/2014/11/05/ebbf933e-6370-11e4-ab86-46000e1d0035_story.html

 

The drop in advertising revenue is much lower for the state-owned broadcasters vs the total market. I didn't see the advertising ban mentioned on this thread. Last year's results included the Winter Olympics so it makes sense to see some drop (like 8% drop for Kommersant). In that context, CTC's results don't look as bad. It looks like only Channel 31 was using foreign content and they have adjusted their overall content to fall within regulations.

 

[phil_Buffett]

http://www.bloomberg.com/news/articles/2015-09-24/russia-s-ctc-media-said-to-offer-250-million-to-buy-out-owners

[ATLValue]

any estimates on the final distribution? Seems like it will be around where the stock is currently priced unless I am missing something. Also, does anyone know when the actually distribution will be paid? To be in compliance does it need to be paid before or on 12/31/2015?

[ScottHall]

any estimates on the final distribution? Seems like it will be around where the stock is currently priced unless I am missing something. Also, does anyone know when the actually distribution will be paid? To be in compliance does it need to be paid before or on 12/31/2015?

 

I get more around $2.10 - $2.13. I bought a very small stake for giggles; as far as going private transactions go, this seems like a riskier one.