|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||60||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
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
Started in 1971 by a visionary entrepreneur
In 1971, Shan Chandrasekar
started a production company that sold ethnic programming to existing channels
In 2001 Asian Television finally
got broadcast on Rogers Communications, eastern
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
Zee Cinema is the #1 Bollywood channel in
Zee Gujarati is the Gujarati (language from the Indian
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
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
If you would like to order
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
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
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
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.
Not included in the above
estimates is the very strong opportunity for the company to duplicate its
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
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.
|Subject||XM Radio deal|
|Entry||09/18/2007 10:35 AM|
TORONTO, Sept. 18 /CNW/ - XM Canada (TSX: XSR - News) and Asian Television Network International Limited (TSX: SAT - News) today announced the creation of ATN-Asian Radio, the first and only North American radio service of its kind. Produced by ATN for XM Canada, Canada's pioneer South Asian Broadcaster, this 24 hour-a-day channel (XM159) will serve the South Asian community across North America starting this October, with the latest news, sports and entertainment.
|Entry||09/18/2007 02:16 PM|
|Thanks for another great investment idea.|
A couple questions:
With such compelling investment drivers, why is the company still trading at these levels?
What is your level of confidence on the CEO?
|Entry||09/18/2007 03:44 PM|
|I think that no one knows about the company. The stock is illiquid and there is no analyst coverage. That is why the stock trades at this level.|
Further look at the performance of the stock in the last two years. A few investors are catching on.
I have a high degree of confidence in the CEO. I have met him personally and he is very, very driven.
|Subject||4.6 rating? ROIC is 95%!!!|
|Entry||09/18/2007 03:46 PM|
|As a service to me, can the users who posted a 4 rating or lower please let me know what they saw that caused them to rate this stock at this level?|
The stock trades at 4.5 times next year's EBITDA with no real debt if you take out the value of their film library and it is growing cash flow at 60% with a monopoly position. Finally with a ROIC of 95% in the last twelve months how could this deserve such a rating?
Please post and let me know if I am missing something.
|Entry||09/18/2007 06:46 PM|
|I have to agree that I would like to know why one (or more) of the knowledgeable investors in this forum believes that this stock "Will underperform the market by 20% with more risk". |
At the moment when there were 5 ratings, I had given this a 7, and the average was slightly above 4.
All in all, I don't think anyone should have to "justify" a low or high rating, but the contrary ideas surely make the debate more interesting and productive.
|Subject||re:on rating questions|
|Entry||09/18/2007 06:56 PM|
|I appreciate your comments. I debated writing something or not. I decided to write that post because the negative and critical comments on VIC are sometimes spot on and very informative.|
I would much rather have that person tell me what he thought wrong of my idea.
I know I have written many ideas on VIC and also didn't know if people were getting tired of me writing stocks up.
Either way, I wasn't complaining but curious. This isn't about winning the week but making sure one of the big positions in my portfolio is as solid as I think it is.
|Entry||09/18/2007 07:00 PM|
|From a business point of view and secular point of view, the ideea is most interesting. |
However, one thing you may have done but I do not think you did is to back out library earnings from EBITDA. Otherwise, you are valuing the library twice. Did you back out library earnings?
|Entry||09/19/2007 10:03 AM|
|Thanks for an interesting idea.|
I rarely look closely at companies that are more than about 55-60% owned by insiders, particularly a single insider. Maybe I am missing out, but it often happens that the stocks of even great companies with dominant insider ownership perpetually trade at a big discount, due to the fear of privatization or insider abuse, and sometimes these fears are manifest. Maybe this is more a comment than a question, to help explain the languishing shares and lack of investor and analyst interest. One way to frame it as a question is to ask why the company is public to begin with -- clearly they don't need financing or the hassle of being public? I would probably not be very interested until the company makes a clear commitment to deliver value to shareholders, which would mean issuing more stock, which they have no reason to do. If you have any insights here I'd appreciate hearing them.
Also what do you know of Mr. Chandrasekar's compensation package?
How does Shaw Multicultural Channel (SMC) compare to ATN?
What is the incremental revenue change for ATN for each new channel? Does the same $14.95 (in the case of Rogers) cover all channels from ATN, or does ATN get a revenue bump from each channel?
Ethnic and multi-cultural programming is an interesting trend, though skeptics say that the programming is simply not very good even though it is in the "correct" language/culture, thus will not be able to compete with mainstream entertainment. However ATN's numbers so far are good.
|Entry||09/19/2007 02:12 PM|
|This is an excellent question and thanks for asking it.|
Please remember that in my research report, I cited two main ways to value the company. First, from a liquidation value or sale, which got to near $5 a share and then from a simple multiple of EBITDA which was $5 a share.
I cited the valuation without the film library to as a secondary valuation and you were right to call me out on it.
It is not double counting if you were to sell the film library, but after talking with the CFO, you would have to take a 10-15% discount, because that is generally what the amount that they show on a daily basis from their film library.
Longer term, what was interesting from asking this question is that the company may be able to do a sale-leaseback to an investor and better monetize this asset to put cash to work in case they decide to go international or to take advantage of other opportunities.
So maybe the right way to re-phrase my comment is that outside of the film library is that this stock sells for 6 times next year's cash flow excluding the benefit of the film library of $0.2125 per share (15% discount). I had previously said 4-5 times EBITDA.
Thanks for the question.
|Entry||09/19/2007 02:29 PM|
|These are very good questions. Thanks.|
My chief concern is yours as well. With an insider owning so much of a company, is he going to enrich himself at my expense or is he going not be focused on shareholder value.
Consider that his salary is $250K a year and he nor anyway else in the company gets any options. Further, he has never sold a share of ATN since its been public. Also, check out the past three years of stock performance as to delivering value to shareholders. And with an ROIC so high, we are bound to see an increased stock price.
I think that the company in the next year will be considering some major initiatives (such as international expansion) and at that time may consider expanding the share base. But why would they issue shares below liquidation value?
Shaw Multicultural channel is like Rogers Communications' Omni channel. It is a broadcast channel, not a pay channel like ATN. Also these channels are limited to 10-12% of South Asian content, and the rest is Chinese, Russian, scottish, etc. And from my understanding it is poor content at best. I think ATN competes quite well due to its growing subscriber count and low churn and the fact that people pay to subscribe.
|Entry||09/19/2007 05:03 PM|
|>>> But why would they issue shares below liquidation value? <<<|
Well this is exactly the problem -- the company doesn't need shareholders. It is obviously self-funding, and could probably be taken private today. The languid stock doesn't provide benefits such as giving stock options to employees or making acquisitions with stock, and if the company grows, it has no incentive to take shareholders along for the ride except a sense of altruism, which unfortunately an analyst can't count on. The longer the stock stays down it becomes more ripe for takeunder. The company would have to actively do something to create liquidity in the stock such as issuing shares or courting analysts. So unfortunately it could be dead money indefinitely. > 50% ownership by one or a few insiders is a deal breaker for me for these reasons.
I don't want to belabor the point though, and it is an interesting company with great numbers. For your sake I hope my concerns are overblown.
|Entry||05/08/2008 03:33 PM|
|So, I haven't updated this company because I thought no one cared, but apparently that is wrong.|
So here is an update. The company hit a road bump. They bought a bunch of programming at the end of last year and had no real corresponding revenue to that programming expense. They expensed all of it and then they also bought the rights to a cricket event that didn't do well. End result, bye bye profits.
Also, finally the Shaw is adding more of SAT's channels to its offering in Western Canada. This will give SAT a boost.
And immigration by South Asians has accelerated and they are now the number 1 immigrant group into Canada.
The stock is even more of a bargain now and I expect to start seeing some good numbers and growth again. This is a very illiquid stock, but I think a great one to put away. The film library alone is worth more than twice the current stock price.
In summary, even in my silence, I still very much like the company and the stock.
|Subject||New Cricket league and update|
|Entry||06/02/2008 02:43 PM|
|Last year, SAT signed a $1 million pact for the rights to broadcast the IPL, the new exciting cricket league that is sweeping India by storm. The league is so popular that ratings for other shows on TV competing against it are down sizable percentage points and shopping in malls plummets when the games are being played. Check out the below link http://economictimes.indiatimes.com/News/News_By_Industry/Services/Retailing/After_multiplexes_retail_giants_face_IPL_heat/articleshow/3074843.cms SAT wasn't able to get a sponsor for this year as the contract was signed in April and games had already begun, but next year should easily be able get one, probably with RBC or someone of that caliber. This new league should drive sub growth and ad revenue substantially in my opinion. and the fact they got the rights to it for $1 million is stunning. As an update I expect the company to do $16 million in revenue this year and around $0.12 in EBITDA and next year should see really nice growth. I think they can do closer to $20 million and $0.20 in EBITDA. This stock has done poorly, but I still really like it as a long term play on the demographic change happening in Canada. And while recent results have been disappointing, the company is still seeing near 60% ROIC. I think it is very cheap versus its film library, the value of its licenses and its EBITDA and ROIC.|
|Entry||08/27/2008 10:06 PM|
|What is the barrier to entry and the thread of new competition?|
|Entry||08/27/2008 10:19 PM|
|Read the report, anyone who starts another channel, their subscriber has to subscribe to SAT first. This is the ultimate barrier.|
|Subject||RE: RE: competition|
|Entry||08/27/2008 11:36 PM|
|Sorry I should be more clear. I was referring to new competition that may acquire the same CRTC linkage. The reason I ask this is that I believe Fairchild (Cantonese arm) had that linkage before and had to give that linkage to Talentelevision (Mandarin arm) was launched. (I believe the CRTC refuse to give 2 linkages to one company as both are owned by the same group.) Thus losing that protection in the cantonese segment.|
|Entry||08/28/2008 01:04 AM|
|my experience with insiders who own this much stock is somewhat negative - typically they view it as their "baby" and don't care what outside investors think. They tend to believe they have a longer-term (and correct) view than invesors - which may be true, but returns are calculated on a time-weighted basis, so timing does matter. Companies such as INSW (CEO is good but owns too much, is not active in buying back stock despite excess cash) and CNRD.PK (not written up on VIC but maybe as cheap as any stock here. Conrad family owns >50% of stock, cash plus sale leaseback value of land and docks (on books at decades old levels) is $50-70mm out of $85mm mkt cap, they just did $12mm ebitda in most recent quarter alone, co refuses to consider strategic alternatives, gramps is chair, son is ceo and 65, grandson is being primed to run it) tend not to focus on time-weighted shareholder returns, even when growing and sitting on cash. Since they own controlling shares, investors are admittedly hostages to whatever they decide. So - with that said, I'm part South Asian, have family in Canada, SATs has a superb penetration in the demoraphic and I love the moat, but if it starts spitting out cash as per your #s, what does the CEO want to do? Given how thin this is, tiny size of float, and how much the CEO owns, I'd say his interest in doing something and being ticked at his stock price is paramount to the story, otherwise there is huge forever-dead money risk, no? (can't he singlehandedly reject any takeover bid, co is too small for SEC to care if shareholders complain, he can choose to sit on cash and pay himself well, etc). So - is he ticked off at his stock price?|
|Subject||RE: RE: RE: competition|
|Entry||08/28/2008 11:43 AM|
|I think as long as SAT doesn't do anything to jeopardize their protection, there isn't much need to worry.|
|Subject||RE: CEO`s intent|
|Entry||08/28/2008 11:44 AM|
|I think this is always a risk, but I encourage you to give him a call and talk to him. I think his long term track record is excellent and if you visit him in his office, you definitely wouldn't accuse him of extravagant spending. I'm not worried about this since I met with him last year.|