GVC.TO - Glacier Media

[Viking]

For those who follow Glacier Media, yesterday they purchased 20 local newspapers from Post Media for $86.5 million. I was happy to see they did not issue shares to fund part of the aquisition. 

 

http://www.winnipegfreepress.com/business/breakingnews/glacier-to-acquire-bc-papers-from-postmedia-for-865-million-132083118.html

 

GVC = $1.95/share

Dividend = $0.06/share = 3.1%

Post purchase (2012), RBC estimated EPS = $0.33/share and free cash flow = $0.52/share

Should the economy weaken then these estimates will be high; my guess is these estimates will be high regardless (based on what I have seen from RBC and GVC the past few years).

 

The bottom line is the stock is very cheap. And now we have a clear path on where growth in the near term will come from.

 

Strategically, this was a perfect aquisition. Assets like this rarely come up for sale.

The challenge in assessing the purchase is no financials were provided (so RBC's estimates for 2012 are an educated guess at this time). It really comes down to do you trust management?

 

Given their past record with aquisitions (pretty good) and the quality/fit of this aquisition I am going to 'trust managment'. Today I re-established a position in GVC.

 

Since the purchase was announced the GVC share price has moved up only a tiny amount. It looks to me that most investors are waiting to get more information.

 

One of my hang ups with GVC is its market cap is quite small resulting in the shares not being very liquid. As the company continues to grow via aquisitions (like this one) it should get to a size where more institutional investors are more comfortable purchasing the stock.

[Viking]

GVC reported results last week and revenue and profitability was a little better than what was expected.

www.glaciermedia.ca/news/press-release/glacier-reports-third-quarter-results-2

 

Management also discussed the increased and significant free cash flow they will have in 2012 and it appears a dividend increase in the new year is likely (likely mid 2012). They remain open to continued share re-purchases (with prior re-purchases at the $2.35 level one would think that with shares currently trading in the $2.00 level they will be motivated). Their likely immediate use of cash earnings in the new year will be to repay some debt.

 

It appears management feels future free cash flow is sufficient to fund the debt being used for the Post Media aquisition, which is nice to see (one of my concerns is that they would issue shares to fund aquisitions). Managment has done a nice job the past few years of further digesting past aquisitions, strengthening the balance sheet and being shareholder friendly: paid down debt, started dividend & repurchased shares. The Rogers aquisition and Post Media aquisitions will drive some serious growth in revenue and profitability 2012. With revenues in 2012 estimated to be just under $400 million (versus $275 million in 2011) the company is also getting to a size where it may start to attract more attention from institutional buyers with a value slant.

 

GVC does have its warts: lots of 'one time' items are reported every year which are annoying, profitability is only now approaching peak achieved in 2008, tax loss carry forwards will be gone in 2013 (lowering free cash flow), financial details  not supplied for Post Media aquisition (other than purchase price), shares are not very liquid, newspapers are not considered a great business to be in right now, does not hold conference calls at quarter end... to name a few! :-) 

 

Bottom line: relatively stable business, solid management, nice growth prospects, low share price = looks good to me (bought more today).

[Guest Dazel]

 

 

I own it....love the management....we look at it as a play on the resource sector and Agriculture sector...they have great assets in B.C as well...so yes basically we love their clientelle....the majority of their news papers are free....so they are direct to the advertisers...we think it is very cheap here as well.

bought it in 2004 at $2 sold it at $4...and have bought back in again.

Dazel.

[Viking]

One piece of information I was waiting for was financial details regarding the community newspapers GVC  purchased from Post Media (purchase closed end of Nov). Post Media reported results a couple of weeks ago and broke this business out as 'discontinued operations' (12 months to Aug 31, 2011):

Revenue = $120 million

Operating Income Before Deprec, Amort and Restructuring = $17 million

http://www.postmedia.com/wp-content/uploads/2012/01/Postmedia-MDA-Q1-F2012-Final.pdf

Looks like GVC paid about 5 x EBITA, which if true is a very good price given how well these assets fit their business.

 

When GVC reports year end results in March we will get a much better picture of things. I would expect some noise (some restructuring charges) as they announced Dec 31 they were creating three newspaper groups in BC: Island, Lower Mainland and Interior to combine the BC operations.

 

The community newspaper group is not the dog with fleas that the big city daily newspaper business is.

 

Here is a link to an article written on GVC back on August: https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20110825/GIVOX0825ATL

[Viking]

Here is a study done on community newspapers in Canada: http://www.combase.ca/2008-2009/readership-highlights Yes, the study is dated (2008-2009); my guess is the survey results would be similar today.

 

I read both community papers in my city for local news; I also scan the flyers that come each week.

 

Bottom line, I believe the economics for free community papers is better than for paid daily papers and this will likely remain the case for at least the next few years.

 

The newspaper industry (in its entirety) continues to consolidate at a rapid pace. What is nice to see is the cost for newspaper assets has come way, way down the past 5 years. GVC (in hindsight) overpaid for purchases in the past. The Post Media aquisition looks to me to be at about 5 x EBITA, which looks reasonable for community paper assets (with significant real estate assets and synergies thrown in for free). My guess is future purchases would be at or below this level. I would expect for lots more consolidation to happen in the next few years in Canada as thew smaller owners realize the longer they wait the less their operation will likely be worth. There also will be few buyers as the major players in community papers are VERY conentrated regionally. 

 

To me the clear losers are the big city (Toronto, Montreal, Vancouver) paid dailies. The internet looks to be disrupting their business the most and I am not sure where it will all end up. The companies that are very involved in this segment of the newspaper business have their work cut out for them (especially Post Media!). Perhaps Quebecor has the best model for big city media by being able to leverage content accross all platforms like print, mobile, TV, internet etc. It will be interesting to see how big city media evolves.

 

For newspaper ownership details: http://www.newspaperscanada.ca/ownership

Paid Daily: http://www.newspaperscanada.ca/sites/default/files/Ownership%20of%20Canadian%20Daily%20Newspapers%20DECEMBER%202011.pdf

Free Daily: http://www.newspaperscanada.ca/sites/default/files/Free%20Daily%20Newspapers%20-%20Circulation%202011.pdf

 

[Baoxiaodao]

I have followed GVC for a few years. Owned it, sold it and made a little money. I dunno how you guys define cheap, but on a EV/EBITA basis, this business was never cheap to me. The recent purchase by Mr.Buffett of a local newspaper did arouse my interest. It somewhat validated the business model of content-oriented local newspaper. Still, there is better and cheaper stocks to own. So this one is still being watched, for now......

[Guest Dazel]

 

 

I see Tim Elvaine has a big position in Glacier...I possible exit for him and Galcier is to sell to Mr.Buffett....the market does not care about the company...

 

They have great local brands in the type of papers he says he likes and will spin off very nice cash-flow to Berkshire as the cost of debt will drop to nothing. Great management and all of the proponents Buffett likes. Especially price!

I own a very small position that is immaterial to me but I do like the company and all the people involved in it...It might be the happiest of transitions for Glacier because they could be the consolidator for Buffett in the space.

 

Dazel.

[Packer16]

I took a "dive" into the Glacier.  It went down as soon as a bought (as usual) but it has a great FCF yield and a smart management team.  I think some folks here got in a great price in the $1.20s and  $1.10.  Who would be selling down here?  I was surprised that I was able to buy a good sized position despite it representing over 40% of the daily volume. 

 

Packer

[Guest Dazel]

 

Mclevaine and Chou are selling so people are scared...both did not sell at $4 so odd to see them Selling now..

 

Still think that Buffett is the one to call.

 

 

Dazel.

[Packer16]

Did they since the end of Q2 or before? Do you have any idea if the rationale?

 

Packer

[NormR]

Mclevaine and Chou are selling so people are scared...both did not sell at $4 so odd to see them Selling now..

 

Didn't they sell some time ago?  (Where are you getting the info.)

 

Tim has been trying to better diversify his portfolio, which could explain the sale in 2012. 

 

[Guest Dazel]

Info is from sanjeev' s great opportunity thread where people think he is buying Glacier. For the record...I do not care whether Chou and Mcelvaine are selling or did sell.

 

Great management, good cash-flow, a lot of income is from digital...too much more going on in our investment world to get involved here but we made a lot of money here before and hopefully we get another chance.

 

Dazel.

[alertmeipp]

Mclevaine and Chou are selling so people are scared...both did not sell at $4 so odd to see them Selling now..

 

Didn't they sell some time ago?  (Where are you getting the info.)

 

Tim has been trying to better diversify his portfolio, which could explain the sale in 2012.

 

did this ever trade as high as 4 in the last 5 years?

 

not according to yahoo.

[Hawks]

GVC traded over $4 in spring 2008. See Morningstar graph.

[Phaceliacapital]

I also jumped in yesterday (modest position)

 

Full price graph below for your comfort:

[Guest Dazel]

 

 

We sold a block trade at $3.85 at the start of the 2008 crisis to buy more Fairfax.

 

Management are the smartest guys in the room or I would not touch it Harvard educated and scary smart.

 

Dazel.

[CanadianMunger]

 

 

We sold a block trade at $3.85 at the start of the 2008 crisis to buy more Fairfax.

 

Management are the smartest guys in the room or I would not touch it Harvard educated and scary smart.

 

Dazel.

 

 

In terms of capital allocation I question the wisdom of paying out a dividend when its obvious the stock is trading far below intrinsic value.

 

-CM

[shalab]

Management are the smartest guys in the room or I would not touch it Harvard educated and scary smart.

 

I think it is a problem ala LTCM - these guys quote Buffett but aren't able to follow-through.

[Guest hellsten]

Management are the smartest guys in the room or I would not touch it Harvard educated and scary smart.

 

I think it is a problem ala LTCM - these guys quote Buffett but aren't able to follow-through.

 

…and in the 2012 annual report they wrote Buffet [sic] more than once ??? I didn't expect that from a media company.

[Parsad]

Management are the smartest guys in the room or I would not touch it Harvard educated and scary smart.

 

I think it is a problem ala LTCM - these guys quote Buffett but aren't able to follow-through.

 

10 times growth in revenues, 6 times growth in free cash flow, and almost 8 times growth in normalized earnings over the last ten years while outstanding shares grew by 3.5 times...don't confuse company performance with stock performance.  There in lies the lesson.  Cheers!

[tengen]

…and in the 2012 annual report they wrote Buffet [sic] more than once ??? I didn't expect that from a media company.

 

don't confuse company performance with stock performance.

 

Or the ability to spell...  :)

[plato1976]

The truth that two guru are selling (chou etc.) is disconcerting ...

First of all, want to understand why the market is pessimistic

- maybe some kind of combination of the bearishness on resources and bearishness on newspaper ?

 

 

…and in the 2012 annual report they wrote Buffet [sic] more than once ??? I didn't expect that from a media company.

 

don't confuse company performance with stock performance.

 

Or the ability to spell...  :)

[plato1976]

ok. now I see the possible reason of the pessimism - copied from another thread here:

Again it's about debt ! I always have some fear when a very tiny company running into a debt issue -

I was dragged into permanent loss a few times in such cases. Anyway, time to dig more

 

"

Quote from: LakesideB on September 16, 2013, 05:42:39 AM

Quote from: Cardboard on September 16, 2013, 05:22:35 AM

Glacier Media Inc.

 

Sanjeev said he was buying at the $1.55 level and maybe a bit higher. The stock is now down to $1.15 following negative comments from a BMO analyst who was previously a big supporter. Market cap is now $103 million and it is pretty illiquid.

 

Cardboard

 

This could be it. Although the company did get very close to breaching its covenant on its debt.

 

They have quiet a few levers to avoid a run by the banks however: real-estate, further cost cutting (although its CEO runs a very tight ship).

 

It seems that they are sort of facing a perfect storm : they levered the company up to buy Post Media asset and it hasn't worked off as they expected ... plus you have weakness in the national advertising creating all sorts of issues for them. Additionally, they have a potential $20-$25m tax hit due to dispute with CRA. If they didn't have a ton of debt, things would have been much easier to navigate.

 

CEO and mgmt owns abt 33% .. .so they have a huge vested interest to make this work.

 

My sense they will eventually pull it off.

 

 

"

The truth that two guru are selling (chou etc.) is disconcerting ...

First of all, want to understand why the market is pessimistic

- maybe some kind of combination of the bearishness on resources and bearishness on newspaper ?

 

 

…and in the 2012 annual report they wrote Buffet [sic] more than once ??? I didn't expect that from a media company.

 

don't confuse company performance with stock performance.

 

Or the ability to spell...  :)

[alertmeipp]

ok. now I see the possible reason of the pessimism - copied from another thread here:

Again it's about debt ! I always have some fear when a very tiny company running into a debt issue -

I was dragged into permanent loss a few times in such cases. Anyway, time to dig more

 

"

Quote from: LakesideB on September 16, 2013, 05:42:39 AM

Quote from: Cardboard on September 16, 2013, 05:22:35 AM

Glacier Media Inc.

 

Sanjeev said he was buying at the $1.55 level and maybe a bit higher. The stock is now down to $1.15 following negative comments from a BMO analyst who was previously a big supporter. Market cap is now $103 million and it is pretty illiquid.

 

Cardboard

 

This could be it. Although the company did get very close to breaching its covenant on its debt.

 

They have quiet a few levers to avoid a run by the banks however: real-estate, further cost cutting (although its CEO runs a very tight ship).

 

It seems that they are sort of facing a perfect storm : they levered the company up to buy Post Media asset and it hasn't worked off as they expected ... plus you have weakness in the national advertising creating all sorts of issues for them. Additionally, they have a potential $20-$25m tax hit due to dispute with CRA. If they didn't have a ton of debt, things would have been much easier to navigate.

 

CEO and mgmt owns abt 33% .. .so they have a huge vested interest to make this work.

 

My sense they will eventually pull it off.

 

 

"

The truth that two guru are selling (chou etc.) is disconcerting ...

First of all, want to understand why the market is pessimistic

- maybe some kind of combination of the bearishness on resources and bearishness on newspaper ?

 

 

…and in the 2012 annual report they wrote Buffet [sic] more than once ??? I didn't expect that from a media company.

 

don't confuse company performance with stock performance.

 

Or the ability to spell...  :)

 

It's easier for management to regain their stakes from bankruptcy than commons.

[Parsad]

ok. now I see the possible reason of the pessimism - copied from another thread here:

Again it's about debt ! I always have some fear when a very tiny company running into a debt issue -

I was dragged into permanent loss a few times in such cases. Anyway, time to dig more

 

"

Quote from: LakesideB on September 16, 2013, 05:42:39 AM

Quote from: Cardboard on September 16, 2013, 05:22:35 AM

Glacier Media Inc.

 

Sanjeev said he was buying at the $1.55 level and maybe a bit higher. The stock is now down to $1.15 following negative comments from a BMO analyst who was previously a big supporter. Market cap is now $103 million and it is pretty illiquid.

 

Cardboard

 

This could be it. Although the company did get very close to breaching its covenant on its debt.

 

They have quiet a few levers to avoid a run by the banks however: real-estate, further cost cutting (although its CEO runs a very tight ship).

 

It seems that they are sort of facing a perfect storm : they levered the company up to buy Post Media asset and it hasn't worked off as they expected ... plus you have weakness in the national advertising creating all sorts of issues for them. Additionally, they have a potential $20-$25m tax hit due to dispute with CRA. If they didn't have a ton of debt, things would have been much easier to navigate.

 

CEO and mgmt owns abt 33% .. .so they have a huge vested interest to make this work.

 

My sense they will eventually pull it off.

 

 

"

The truth that two guru are selling (chou etc.) is disconcerting ...

First of all, want to understand why the market is pessimistic

- maybe some kind of combination of the bearishness on resources and bearishness on newspaper ?

 

 

…and in the 2012 annual report they wrote Buffet [sic] more than once ??? I didn't expect that from a media company.

 

don't confuse company performance with stock performance.

 

Or the ability to spell...  :)

 

It's easier for management to regain their stakes from bankruptcy than commons.

 

What?!  No where near bankruptcy.  Management owns a ton of common (1/3rd of the company effectively)...that would be a pretty big hit.  Cheers!