Asian Television Network SAT
September 17, 2007 - 4:05pm EST by
2007 2008
Price: 2.45 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 60 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Trading below liquidation value of $4.70 per share, yet growing cash flow around 60% with a monopoly position and an incredible demographic trend behind its back, Asian Television represents an excellent investment opportunity. Focused on the soaring numbers of South Asians (non-Chinese, mainly Indians) in Canada, Asian Television is growing at rapid rates yet trades 14 times this year’s EBITDA of $0.18 per share. The company is likely to quadruple its cash flow in the next five years as it keeps launching new channels, increases its distribution, increases its national advertising base and simply benefits from its core demographic doubling in the next ten years.


Started in 1971 by a visionary entrepreneur


In 1971, Shan Chandrasekar started a production company that sold ethnic programming to existing channels in Canada. This entity eventually transformed into the 24 hour Asian Television Network (ATN) channel in Canada. The Canadian Radio-television and Telecommunications Commission (CRTC) awarded a category one national license for South Asian programming in 1997 (Category 1 license is the highest license that you can get from the CRTC and makes it a must carry channel on all cable and satellite systems). Mr. Chandrasekar for his efforts in bringing ethnic programming to Canada was inducted into the Canadian Broadcasting Hall of Fame in 2004.


In 2001 Asian Television finally got broadcast on Rogers Communications, eastern Canada’s largest cable company. Asian Television now boasts 14 channels. Here is the lineup of channels:


1)      Asian Television Network is the company’s flagship 24 hour channel with the best programming from Zee TV & Star Plus, the two biggest stations in India, as well as original programming, cricket, soaps, etc.

2)      Sony Entertainment shows Hindi family entertainment and US movies dubbed in Hindi

3)      B4U shows the best of Bollywood movies. (Think HBO).

4)      Alpha Punjabi shows Punjabi focused programming

5)      Tamil shows Tamil based programming

6)      ARY shows Pakistani programming

7)      CBN shows Caribbean programming, though mainly cricket

8)      Zee Cinema is the #1 Bollywood channel in India

9)      Zee Gujarati is the Gujarati (language from the Indian state of Gujarat) family entertainment

10)  Aastha is a culture, social and spiritual focused channel

11)  Bangla is a Bangladeshi channel

12)  NDTV is New Dehli TV which is an English language based news channel

13)  B4U Music is the first South Asian music channel

14)  Cricket Plus is a 24 hour cricket channel


Asian Television currently has 160,000 to 180,000 subscribers, and its subscriber base now represents over 10% of Rogers Communications digital subscriber base.


Serving an exploding demographic


There are one million South Asians in Canada and it is now one of the fastest growing immigrant groups in Canada. (Immigrants from India, Bangladesh, Pakistan and Sri Lanka are all considered South Asians.) This population is expected to double in the next ten years.


In addition to higher than average birth rates, Canada’s open immigration policy has made it an accessible country for immigrants of all kinds, but especially educated immigrants who already speak English, for which Indians are at a great advantage.


Asian Television has been launching new channels at an impressive clip, launching 8 new channels since 2005, representing a 130% increase in the number of channels it offers. The company is essentially in a land grab for a demographic of people that has 17 languages or dialects. The company is building an impressive breadth of programming and distribution all surrounding its main channel which boasts an impressive “wide moat advantage.”


Main channel offers a monopoly “wide-moat” advantage


From Rogers Communications website (note: Sahara One is a new Rogers owned channel):


If you would like to order Sahara One, you will be required to purchase ATN (Asian Television Network) as well. If you do not currently subscribe to ATN, an additional $14.95/month for the channel will be applicable. Due to CRTC linkage requirements, it is mandatory that Sahara One be linked with ATN. This requirement is applicable to all service providers in Canada that carry Sahara One and is not limited to only Rogers.


As part of its category 1 channel license that ATN received in 1997, ATN acquired added stipulations which substantially restrict competition. Basically, if another channel is launched for South Asian programming, a subscriber must subscribe to ATN along with the new channel. The cost of this makes it almost cost prohibitive to the subscriber. And it might be the reason that Sahara One only has 3,500 subscribers. ATN is appreciative as these 3,500 subscribers are also subscribers of ATN.


I think that these restrictions and ATN’s main license represents a competitive moat the size of the Mississippi and represents real value to shareholders.


Subscriber Count is exploding while churn is low


Last year the total subscriber count increased by 40%. A big portion of the subscriber count came from all of the new channels that the company launched in 2005. However its main channel, ATN, saw subscriber growth of 28%.


The company estimates that their churn is about 3% a year. If customers are paying $14.95/month for a channel and the churn is this low, this gives confidence as to the value of the channel to those consumers.


The company estimates that its natural subscriber count growth just due to demographics is about 6%-7% a year. However, the company hopes to launch 1-2 channels a year and also the company does not yet have full distribution throughout Canada.


Distribution should dramatically increase as will new channels


While Rogers Communications carries all 14 of Asian Television’s channels in Eastern Canada, Shaw Communications, the dominant provider in Western Canada, only carries 3 channels. However, Asian Television expects Shaw to double the number of channels to 6 very soon.


Other smaller cable providers including Telus and BellExpressVue carry 9 and 8 channels out of a possible 14. As distribution increases, Asian Television subscriber count should jump.


The other factor driving subscriber growth is the launch of new channels. Asian Television is already readying Ariana TV focused on Pakistanis and HUM TV focused on the Urdu language.


The combination of increased distribution with continued new channel launches should allow Asian Television to grow subscriber counts at least 15% to 20% per year on a conservative basis.


Advertising revenue mix should switch to higher rates with more national ads


Beyond just growing subscriber numbers, advertising should continue to jump higher. In the first half of 2007 advertising revenue increased over 80% from the prior year. Advertising should continue to increase as the company transitions from having primarily mom and pop advertisers to more national advertisers who pay higher rates.


Right now 60%-65% of advertisers are mom and pop advertisers who on average pay about C$300 a minute for an ad. National advertisers pay around C$1000 a minute per ad. As they flip the percentages for advertisers to the majority advertising revenue will continue to surge higher.


Growth will drive cash flow growth through 2010 and beyond


I expect that subscriber revenue should increase at about 20% a year for the next three years conservatively. I also expect advertising revenue to grow about 40% a year for the next three years as the company transitions to more national ads. Remember that these are much lower than current growth rates of 42% in subscriber revenue in the first half of 2007 and an 80% increase in advertising revenue. I expect programming revenue should increase about 20% a year as well.


I estimate that expenses should rise about 20% a year and some leverage should start to drip down to the bottom line. I expect that the company will earn C$0.18 in EBITDA in 2007, C$0.25 in EBITDA in 2008, C$0.34 in EBITDA in 2009 and C$0.48 per share in EBITDA in 2010.


Return on Invested Capital is ridiculously high


Asian Television has had a return on capital of 150% in fiscal 2005, 105% in fiscal 2006 and 95% in the trailing twelve months ended June 30th, 2007. The calculation for Return on Invested Capital is:


ROIC = EBIT / (Net Working Capital + Net Fixed Assets)


For Asian Television I added net Other Assets to the denominator as it includes their Program Rights & Tape Library. I used the balance sheet basis for these figures.  Any company generating close to triple digit ROIC rates are valued very high because those are the companies that generate so much value. In short, Asian Television is rapidly creating tons of value for shareholders.


International opportunity


Not included in the above estimates is the very strong opportunity for the company to duplicate its success in Canada in other countries with a strong South Asian immigrant community. Such countries could include Britain, many European Union countries and South Africa.


There are simply lots of international expansion opportunities that could cause a sizable increase in revenue and cash flow numbers.


Valuable Film Library


Ten years ago, Asian Television had its film library of shows, interviews, concerts, etc. appraised at C$26 million. Since then they have added literally thousands of hours a year of content. This asset is of substantial value. The company is currently exploring opportunities to resell some of this content back into India.


Sum of the parts Liquidation Value


The most interesting part of analyzing Asian Television is the sum of the parts valuation. Consider for example the value of its Category 1 license for South Asian programming for its main channel. In 1987, Fairchild Media Group paid $12 million for the Chinese license. Now if we index this for inflation (3%), the value of this license is $22 million. However, I would argue that this license is much more valuable as the demographic has become demonstrably more powerful and larger. If we were to say that the value of this license is worth a 10% annual increase since 1987, we would get a share price that is 20% higher than the current share price.


Being as conservative as possible, and assuming a $22 million of value for the main channel, $38 million for their film library, and $4 million a piece for each of its 13 other licenses, plus $2 million for its building in Newmarket and $1 million for its equipment, we get a value of $115 million. That comes out to around C$4.70 per share, significantly higher than its current share price.




I expect Asian Television to trade to C$5 in the next 12 months either on a break-up valuation or based on 20 times my 2008 EBITDA estimate. And due to its growth and its monopolistic moat, it could trade significantly higher than that. In two years, the company could trade to C$10 per share if you were to take into account the excess value of its film library.


Another way to look at this company is to take out its film library value of C$40 million (current estimate), or C$1.63 per share, and you are paying 5-6 times EBITDA for a company currently growing cash flow at 60% and should grow cash flow over 25% a year for the next three to five years.




The first risk to mention is that the company is very illiquid and that you must be patient to trade it. In my opinion, this is a stock to own not to trade. The majority of shares are controlled by the CEO who owns about 16.4 million of the 24.4 million shares. That leaves 8 million shares in the float. That gives shareholders C$22 million of available float to buy at current prices.


The second risk I see is the Internet. The company is soon to announce an Internet strategy and is fully willing due to its low cost structure to take advantage of the Internet. However, there may come a time (I don’t think we are near to it), when piracy on the Internet similarly hurts TV like it is currently hurting music. I believe the current lack of bandwidth and equipment and the current power of cable and satellite TV makes it likely that this will not be an issue for 5 or 10 years at least.


The final risk I see is that the CEO owns the majority of the shares and while I believe him to be an honest person, hard working and respectful of shareholders, there is always the chance that he will do something that is detrimental to minority shareholders.




Asian Television represents the ultimate investment of a high margin business with excellent growth prospects with a very, very wide moat. I believe my forecasts and valuations in here have been extremely conservative because the stock price is so low there is no reason to show what really could be ridiculous numbers. Consider that the company could earn close to C$1 per share in EBITDA in five years, meaning it could be worth C$15 to C$20 per share.


1)New distribution
2)New channel launches
3)Internet deal
4)International expansion
5)Analyst Coverage
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