TIME - Time Inc.

[Wilson-TPC]

New to the forum - Greetings.

 

TIME Inc. and why it’s worth more than 25

 

• $40.00 price target

• Undervalued, underutilized, and underinvested assets with a leading market position and great pricing potentials.

• Trades at 6.77x OIBDA while Meredith trades at 10.7x EBITDA.

• Recent revenue decline masking the true potential of TIME’s assets.

• Optionality to become a pure play digital media company.

 

TIME is a recent spinoff from TWX (Time Warner.) Its assets have been underinvested, underutilized for the past 3-4 years. As demonstrated in the company’s PowerPoint slide (https://www.bamsec.com/filing/119312514198445?cik=1591517), revenue has been declining from $3.677 billion in 2011 to $3.354 billion in 2013, adjusted OIBDA margins also decreased from 20.1% in 2011 to 17.5% in 2013.

 

Despite the structural headwinds in the magazine publishing business, TIME is a low capex high free cash flow generating machine. FCF for 2013 was $384 million with a 3-year average OIBDA to FCF conversion ratio of 65%.

 

Current valuations have TIME trading at 6.94x forward EV/OIBDA and 10.53x EV/FCF, while competitor Meredith trades at 9.6x EBITDA and 15.11x EV/FCF. There is a big distinction between Meredith and TIME that I should point out. Meredith has a Local Media division that has a 39% EBITDA margin and contributes to nearly half of Meredith’s operating income while comprising only 28.5% of revenue. Meredith’s publishing unit (National Media) has seen both advertising and publishing revenue go up versus TIME’s decline.

 

I think the primary reason for the TIME spinoff was attributed to the fact that Time Warner realized this was an undervalued, underinvested, and underutilized company. The revenue decline at TIME does not explain the full picture of the structural headwinds in the magazine publishing business as competitor Meredith has shown otherwise.

 

As shown in the PowerPoint slides, TIME is expected to see stabilization in its revenue this year with a flat to 2% growth rate projection. I believe that if TIME is able to show that it’s able to return to a modest growth trajectory (3-4%), it will trade alongside Meredith’s multiples. My price target for TIME is $40.00 per share by the end of 2015.

 

I will have an article out on this soon on SA. I would love to hear your thoughts on this investment!

 

[peter1234]

Welcome !

:D

 

Thanks for a nice idea!

 

A few random questions:

 

Why do you use different metrics? OIBDA, EBiTDA?

 

1 comp is nice but would like to see more.

 

Publishing is a melting ice cube. 'Modest' 3-4% growth would make others in the industry jump for joy.

 

Melting ice cube investing can be profitable, but I would like to see value on its own, rather than just relative to 1 comp.

 

Please do no take these as criticism, just trying to get the discussion started and getting a better understanding.

;)

 

[Wilson-TPC]

Hi Peter,

 

Don't worry, I get actual "criticisms" on SA. I'm quite "thick" skinned now... lol

 

The only reason one comp is used is because it's the "closest" comp you can find that's publicly traded. If you look at the EBITDA multiples on newspaper comps, they are all trading at 9x-10x, NWSA, NYT, TRBAA.

 

Unfortunately, I would use more comps if it affected TIME's valuation. It's cheap on an absolute basis too.

 

OIBDA is the same as EBITDA. Some media companies use OIBDA, some use AOCF (like AMCX), some use EBITDA, but the calculation of the three are all the same.

 

It is definitely a melting ice cube business... Not going to lie or hide the truth there, but I think with such a dominant position, the content it owns could generate revenue in other venues. In the mean time, investors can milk the FCF generated.

 

Forgot to mention, it will pay 30% of its 383 mil cash flow in dividends.

 

 

[Chalk bag]

Wilson - good luck with that. I think you need to strip out the media assets from all the comps you mentioned (which aren't doing so poorly). TIME is a pure magazine / content asset that will never grow unless they do something fancy w/ the asset base. The valuation is fair as it is and you just clip the 8-9% FCF coupon if the management wants to give it back. I can't see anyone paying up for this asset. And by the way NYT is at 7x forward, very similar to where TIME forward is - you have to factor in added cost from the separation (which I believe to be 15-35 mm but too lazy to confirm from their transcript/presentation). It's okay, but unless something changes I don't think you reap great reward owning it.

 

Unless somehow the ability to generate quality content somehow works thanks to a new business model, but I have no visibility for that. Their 2-3x leverage is doesn't here there though.

 

Thanks for the effort, but I just thought money can be deployed elsewhere.

[Wilson-TPC]

Possible consolidation in this space with all the new spin-offs.

 

Thoughts?

[Packer16]

Wilson,

 

Welcome to the board.  I think Chalk Bag is correct these local TV station groups trade at 10 to 12x EBITDA and have take-out multiples on the high-end in part due to the network affiliation agreements they have which allow for cable company payments of the highest per sub amount of any agreement held by a network group.  If you pull out an 11 or 12x multiple out of Meredith you get a 7 to 8x multiple for the magazine group.  I think you will get the same result for Tribune.

 

Packer