TPUB - Tribune Publishing

[Chalk bag]

This topic is deemed to surface at some point. the quick pitch is that it is trading at 15-20% FCF yield and 12.5% unlevered yield, 4.5x EV/EBITDA, and is actively rolling up regional newspapers w/ the co-founder of Evercore. Following NEWM's playbook but getting a 4-turn discount in multiples. Company is doing 175 mm EBITDA now and is set to do that again next year thanks to the cost cuts, digital effort, and acquisition. Company had been quiet but, w/ mgmt's options being struck at ~$19, I expect the next earnings season to be a pretty big catalyst for a re-rating. There are some hidden assets in there too. I can see a realistic case towards ~$28 / share even in a bad tape like this.

 

This article sums it up pretty well.

http://seekingalpha.com/article/2557435-tribune-publishing-is-undervalued-after-recently-being-spun-out

 

[Wilson-TPC]

Interesting idea. Will take a look.

 

[Packer16]

Interesting idea but how is this different from AH Belo, McClatchy and Glacier Media who all trade at similar multiples of EBITDA.  I don't understand the pricing of NEWM as it is almost 2x the EBITDA multiples of the other industry players.  I think the other newspapers (AH Belo and McClatchy) are fairly valued as there business is shrinking.

 

Packer

[morningstar]

Interesting idea but how is this different from AH Belo, McClatchy and Glacier Media who all trade at similar multiples of EBITDA.  I don't understand the pricing of NEWM as it is almost 2x the EBITDA multiples of the other industry players.  I think the other newspapers (AH Belo and McClatchy) are fairly valued as there business is shrinking.

 

Packer

 

I also think the group is getting interesting if an economic pullback isn't imminent. MNI in particular seems more attractive as:

(1) you still have the CareerBuilder stake that was held back at TRBAA in this situation;

(2) you have a huge amount of cash on hand, which supports the acquisition thesis if you like the rollup play or - if you get lucky - could provoke a major dividend or buyback program in the near future. MNI has a $265m market cap and capital return capacity (i.e. pro forma cash plus flexibility under debt agreements) of about double that.

 

On the other hand, the easy low-hanging-fruit costs cuts that long ago were implemented at the standalone publishers may still be available here to help offset the revenue declines. And TPUB definitely has the highest marquee value assets of this group which probably boosts the non-economic value of the group (though leading market assets tend to go hand in hand with higher competition).

[Chalk bag]

Interesting idea but how is this different from AH Belo, McClatchy and Glacier Media who all trade at similar multiples of EBITDA.  I don't understand the pricing of NEWM as it is almost 2x the EBITDA multiples of the other industry players.  I think the other newspapers (AH Belo and McClatchy) are fairly valued as there business is shrinking.

 

Packer

 

Packer,

 

To your point, TPUB's comps are actually all trading at 6-7x vs. TPUB's 4.5x. Perhaps I made a mistake in my computations, but I don't see why such a discount is warranted. See attached for comp table.

 

Chalk bag

[Palantir]

Their circulation revenue as well as advertising revenue keep declining every year, and advertising especially has been a dog. Are you thinking this will stabilize?

[Chalk bag]

Their circulation revenue as well as advertising revenue keep declining every year, and advertising especially has been a dog. Are you thinking this will stabilize?

 

Palantir - I do not and I am still modelling 5-6% decline per year. Even then I get to $28 / share if they execute on cost cuts and acquisition. Digital is all pure upside.

The same argument goes for all the other newspapers. I don't think TPUB is the exception and, if such is the case, then all the public newspaper companies are overvalued.

[morningstar]

Interesting idea but how is this different from AH Belo, McClatchy and Glacier Media who all trade at similar multiples of EBITDA.  I don't understand the pricing of NEWM as it is almost 2x the EBITDA multiples of the other industry players.  I think the other newspapers (AH Belo and McClatchy) are fairly valued as there business is shrinking.

 

Packer

 

Packer,

 

To your point, TPUB's comps are actually all trading at 6-7x vs. TPUB's 4.5x. Perhaps I made a mistake in my computations, but I don't see why such a discount is warranted. See attached for comp table.

 

Chalk bag

 

I think there are various issues with making these comparisons apples-to-apples - e.g. your MNI EBITDA doesn't appear to include the allocation of EBITDA from their CareerBuilder stake which is probably worth $200-250m and would take a turn off the multiple if netted out (a more reasonable approach to get a pure newspaper multiple for both companies). You also appear to be including the full pension underfunding in MNI's net debt, which I think the market is valuing closer to zero. All in all I think the current multiple on MNI is ~5x, similar to TPUB - it's probably the best of the comps. I think TPUB does trade at a slight discount, probably due to lingering effects of the spin, but I think a slight discount is actually justified considering the much higher financial flexibility of MNI as mentioned above.

[Chalk bag]

Interesting idea but how is this different from AH Belo, McClatchy and Glacier Media who all trade at similar multiples of EBITDA.  I don't understand the pricing of NEWM as it is almost 2x the EBITDA multiples of the other industry players.  I think the other newspapers (AH Belo and McClatchy) are fairly valued as there business is shrinking.

 

Packer

 

Packer,

 

To your point, TPUB's comps are actually all trading at 6-7x vs. TPUB's 4.5x. Perhaps I made a mistake in my computations, but I don't see why such a discount is warranted. See attached for comp table.

 

Chalk bag

 

I think there are various issues with making these comparisons apples-to-apples - e.g. your MNI EBITDA doesn't appear to include the allocation of EBITDA from their CareerBuilder stake which is probably worth $200-250m and would take a turn off the multiple if netted out (a more reasonable approach to get a pure newspaper multiple for both companies). You also appear to be including the full pension underfunding in MNI's net debt, which I think the market is valuing closer to zero. All in all I think the current multiple on MNI is ~5x, similar to TPUB - it's probably the best of the comps. I think TPUB does trade at a slight discount, probably due to lingering effects of the spin, but I think a slight discount is actually justified considering the much higher financial flexibility of MNI as mentioned above.

 

Morningstar,

 

Thanks for the pointers. I definitely have ignored some nuances and your points are very helpful. I'm not sure if TPUB should trade at a discount though, MNI has massive leverage and is paying 120 mm+ of interest per annum. Kind of in a similar camp to LEE if I am not mistaken. I think it afford them much less flexibility when it comes to acquiring cheap assets or being take-out candidates. It's not like TPUB doesn't have internet asset either -- given the recent MOVE comp one can assign some crazy multiples on their websites (although I am highly skeptical if anyone is going to pay for it). The bottom-line is that I can kind of see why it is cheap (HFs derisking) and don't think peer premium is much justified; it has a very executable path to stabilize EBITDA, and in 2-3 years they will have very manageable leverage for a take-out by whoever still wants to be a newspaper tycoon.

 

Mgmt had been very quiet and will start talking / seeing investors around the November earnings. If they pitch it right I don't see why the gap between them and NEWM can't narrow.

 

Chalk Bag

[magno111]

Hi

 

i am a shareholder of NEWM and in fact i think it is cheaper than TPUB, you shouldn't value it using EBITDA because NEWM has a ton of NOL's at they won't be paying taxes for years ( they mentioned this fact at Q1 cc) so cash conversion from EBITDA to FCF is way higher than peers. 2014 EBITDA will be around 120M and FCF will 80.

 

you table is incorrect NEWM S/O is 37,4M ( not 54m...) plus 3M for FIG stock options.Secondly EBITDA for NEWM in 2013 was already 100M ( PF since local media acq was made in mid-year), that's is why 2014 EBITDA will be 120M if you do the PF with recent acquisitions.

 

67% revenues at NEWM came from stable business  and SSS are falling slower than comps, for example  Q1 SSS was -2% and Q2 were almost 0%. And  10% of their digital revenues are growing very fast.

 

They issued 7,4M shares for 120M$, so right now PF the have almost zero debt, so EV=700. it is trading at 6x EV/EBITDA 2014 and 8,5x P/FCF 2014. They are consolidating the sector. They have done all of their deals lately at 3x-3.5xEBITDA or 5x  unlevered FCF.

 

Next year once they deploy this 120M excess cash they can raise the EBITDA and FCF up to 160M and 100M. Put a reasonable multiple on that like 7.5x EBITDA and 10x FCF and you can easily see a 25$-30$, and you receive a 5% yield to wait.

 

Management pay themselves a good salary but they are motivated to see a rising share price since they own options to buy 3M shares.

 

[Chalk bag]

Hi

 

i am a shareholder of NEWM and in fact i think it is cheaper than TPUB, you shouldn't value it using EBITDA because NEWM has a ton of NOL's at they won't be paying taxes for years ( they mentioned this fact at Q1 cc) so cash conversion from EBITDA to FCF is way higher than peers. 2014 EBITDA will be around 120M and FCF will 80.

 

you table is incorrect NEWM S/O is 37,4M ( not 54m...) plus 3M for FIG stock options.Secondly EBITDA for NEWM in 2013 was already 100M ( PF since local media acq was made in mid-year), that's is why 2014 EBITDA will be 120M if you do the PF with recent acquisitions.

 

67% revenues at NEWM came from stable business  and SSS are falling slower than comps, for example  Q1 SSS was -2% and Q2 were almost 0%. And  10% of their digital revenues are growing very fast.

 

They issued 7,4M shares for 120M$, so right now PF the have almost zero debt, so EV=700. it is trading at 6x EV/EBITDA 2014 and 8,5x P/FCF 2014. They are consolidating the sector. They have done all of their deals lately at 3x-3.5xEBITDA or 5x  unlevered FCF.

 

Next year once they deploy this 120M excess cash they can raise the EBITDA and FCF up to 160M and 100M. Put a reasonable multiple on that like 7.5x EBITDA and 10x FCF and you can easily see a 25$-30$, and you receive a 5% yield to wait.

 

Management pay themselves a good salary but they are motivated to see a rising share price since they own options to buy 3M shares.

 

Magno111,

 

Good points, I simply pulled the data from Bloomberg and figured I'd have some mistakes...thanks for the pointer. Will correct tomorrow. A few push-backs.

 

- NOL as I last checked in their 10-K is ~223 mm, at 40% tax that's around 90 mm, or $2.5 / share at best. Unless my math is wrong again, they will start paying 40% in 1-2 years. Your FCF conversion number will have to come down to TPUB's 50-60% level, but I doubt it'll be a big swing factor. I also went back to the transcript and they did not mentioned NOLs, maybe I missed it and would love to be corrected.

 

- Would you say that 7.5x EV/EBITDA is a reasonable multiple? What would you make of TPUB's 4.5x then? I think a moderate (1-1.5x) amount of leverage is a good thing to juice the ROE, and unless you believe that NEWM are that much better of an operator & deal-maker vs. TPUB (which has not been promotional), why shouldn't TPUB trade at at least 6x? The digital ad, online site, and marketing segment for TPUB is just getting started and will follow a very similar growth path if the management executes. If we place those kind of multiples on TPUB, it's a double to triple from here. And you get paid 4% to wait.

 

Don't get me wrong, for NEWM, issuing tons of shares @ 7.5x is the smartest thing to do to fuel reasonable acquisitions and it is a 1st class problem TPUB can only dream of for now, but I have a hard time envisioning why TPUB can't do what NEWM is doing and deserve a similar multiple. Maybe they need a league of investment bankers to juice up the slide deck.

[yadayada]

http://www.valuewalk.com/wp-content/uploads/2013/01/Luxor-Capital-Partners-LP-Monthly-Commentary_December-2012N.pdf

 

A piece on tribune int here.

[magno111]

Hi chalk

 

I think TPUB is cheap also, but i prefer to wait until they post some Q as stand alone Co and then decide. you have to consider other factors like revenue trends, margin trends, capital allocation... it is hard to compare apples-to-apples in this sector...

 

NEWM nol's are around 600m as they said in their S-1. And they pursue  an acquisition strategy they can reduce Tax rate  using D&A from the acquisitions.i have no idea why they started a dividend if they can buy  business at 20% yield with that cash flow...

[Chalk bag]

Hi chalk

 

I think TPUB is cheap also, but i prefer to wait until they post some Q as stand alone Co and then decide. you have to consider other factors like revenue trends, margin trends, capital allocation... it is hard to compare apples-to-apples in this sector...

 

NEWM nol's are around 600m as they said in their S-1. And they pursue  an acquisition strategy they can reduce Tax rate  using D&A from the acquisitions.i have no idea why they started a dividend if they can buy  business at 20% yield with that cash flow...

 

Thanks for the reply.  I think this opportunity exist partially and precisely because there is not enough clarity.

Are you referring to the 17+189 = 206 mm of deferred tax asset offset by 151 mm of valuation allowance on page F-41? It checks out w/ (on an ex-VA basis) the ~600 mm NOL you spoke of.

http://www.sec.gov/Archives/edgar/data/1579684/000119312514344401/d674261ds1a.htm

 

[magno111]

Hi chalk

 

I think TPUB is cheap also, but i prefer to wait until they post some Q as stand alone Co and then decide. you have to consider other factors like revenue trends, margin trends, capital allocation... it is hard to compare apples-to-apples in this sector...

 

NEWM nol's are around 600m as they said in their S-1. And they pursue  an acquisition strategy they can reduce Tax rate  using D&A from the acquisitions.i have no idea why they started a dividend if they can buy  business at 20% yield with that cash flow...

 

Thanks for the reply.  I think this opportunity exist partially and precisely because there is not enough clarity.

Are you referring to the 17+189 = 206 mm of deferred tax asset offset by 151 mm of valuation allowance on page F-41? It checks out w/ (on an ex-VA basis) the ~600 mm NOL you spoke of.

http://www.sec.gov/Archives/edgar/data/1579684/000119312514344401/d674261ds1a.htm

 

i have this from their S-1

 

" At December 30, 2012, the Company had net operating loss carryforwards for Federal and state income tax purposes of approximately $632,120, which are available to offset future taxable income, if any. These Federal and state net operating loss carryforwards begin to expire on various dates from 2018 through 2031. A portion of these net operating losses are subject to the limitations of Internal Revenue Code (the “Code”) Section 382. This section provides limitations on the availability of net operating losses to offset current taxable income if significant ownership changes have occurred for Federal tax purposes. "

 

http://www.sec.gov/Archives/edgar/data/1579684/000119312514046780/d674261ds1.htm  f-36

 

i might be in a mistake looking at their latest 10-k they mentioned 223M...

 

it was discussed during the first cc as public company, and management literally confirmed that they won't be paying taxes for years...

 

 

[Chalk bag]

Awful print. Bad miss and they didn't hit on the points I expected. Admitting defeat on this one and doesn't seem like business has stabilized yet.

I regret mentioning it on this board. Hope no one followed.

[peter1234]

Awful print. Bad miss and they didn't hit on the points I expected. Admitting defeat on this one and doesn't seem like business has stabilized yet.

I regret mentioning it on this board. Hope no one followed.

 

Thanks for being so honest.

 

We all live and learn.

;)

[magno111]

Awful print. Bad miss and they didn't hit on the points I expected. Admitting defeat on this one and doesn't seem like business has stabilized yet.

I regret mentioning it on this board. Hope no one followed.

 

don't worry i had bad experiences with spinoffs when they report as stand-alone company for the first quarters , as i said before is better to wait until few Q.

[WeiChiLoh]

what am i missing with this company?

 

After capitalizing for related party leases and operating leases, I get an adjusted EV/EBIT business of roughly 6x. With an adjusted debt to capital ratio of ~55%, lots of operational levers that management can pull, some NOLs carryforwards, and a low multiple, seems like a good bet.