JOURNAL COMMUNICATIONS INC JRN
March 02, 2013 - 4:19pm EST by
andreas947
2013 2014
Price: 5.60 EPS $0.00 $0.00
Shares Out. (in M): 50 P/E 0.0x 0.0x
Market Cap (in $M): 280 P/FCF 0.0x 0.0x
Net Debt (in $M): 50 EBIT 0 0
TEV ($): 330 TEV/EBIT 0.0x 0.0x

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  • Broadcast TV
  • Radio
  • Print media

Description

Journal Communications (JRN)

 

Summary

 

Our fund generally focuses on smaller companies with Ft. Knox balance sheets and large & sustainable free cash flow yields.  We are often seeking a mid-teens FCF yield or higher on an unleveraged basis.  The objective is for the sustainable FCF to eventually drive up the share price to a more reasonable valuation through share buybacks, debt reductions, dividends, or accretive acquisitions.  Obviously, it is important we have a management team that cares about shareholder value.

 

One stock we like is Journal Communications (JRN), a small broadcasting and publishing company located in Milwaukee, WI.  JRN has 35 radio stations and 15 TV stations and publishes the Milwaukee Journal Sentinel, the daily paper in that city, and various community shopper papers in Wisconsin.  JRN’s broadcasting properties include markets like Knoxville, Boise, Tulsa, Omaha, Tucson, Ft. Myers, and Green Bay.  Most investors still think of JRN as a publishing company with some broadcasting assets (e.g., Yahoo Finance lists JRN’s industry as “Publishing – Newspapers”) and assign the company a low publishing-industry type multiple, but actually the reverse is true:  JRN is much more of a broadcaster than a publisher.  And we think JRN’s TV and radio broadcasting assets are highly under-valued, have strong competitive positions, and are likely to increase in value with inflation over time.  We like the local focus of the broadcast business which gives viewers information that is unique to their local market.

 

JRN has very strong free cash flow generation.  In less than four years, from year-end 2008 through 9 months 2012, JRN reduced its net debt position from $220m to $50m, or about $170m, primarily from free cash flow.  JRN has about 50m shares outstanding at about $5.60 per share for a market cap of about $280m.  Prior to two recent broadcasting acquisitions we will discuss, JRN had reduced its net debt to $50m at 9/30/12, resulting in a total enterprise value of about $330m. JRN’s debt reduction of $170m in less than four years represented more than 50% of the entire EV.  We believed, prior to the recent acquisitions, JRN would generate close to $70m of EBITDA and $50m of FCF on average in 2013 and 2014 (we average these two years to reflect incremental political and other advertising in even years) resulting in a valuation of about 4.5x EBITDA or a FCF yield of about 15% unleveraged.

 

In August 2012, JRN repurchased all 3.26m Class C shares (4.45m shares on a Class A equivalent basis) from members and successors of the founding Grant family for $6.25m in cash and $25.6m of unsecured promissory notes.  Management noted the transaction simplified the capital structure and allowed JRN to remove a class of stock that had enhanced voting and other rights.  The share repurchase transaction reduced JRN’s diluted shares to about 50m.

 

JRN’s management, who we like, continues to increase the company’s focus on broadcasting, and recently completed two acquisitions.  It bought two Tulsa, OK radio stations for about $12m in June 2012 and bought WTVF-TV in Nashville, one of the strongest CBS affiliates in the country, for about $215m in December 2012.  Management believes the purchase price for the Tulsa radio stations will be under 7x EBITDA after synergies and for the Nashville TV station under 8x EBITDA after synergies.

We believe these acquisitions will add $30m of incremental EBITDA to JRN, on top of the $70m we expected JRN to achieve before their acquisition.  Overall, JRN will have about $275m in net debt outstanding and a market cap of about $280m, resulting in a total EV of about $555m compared to $100m of average annual EBITDA in 2013 and 2014.  

 

We expect JRN’s two recent broadcasting acquisitions to be highly accretive and we expect JRN to rapidly deleverage its balance sheet.  We believe, in 2013 and 2014, JRN could generate average FCF of $70m or $1.40 per share.  Based on these estimates, we believe JRN could trade for $12 per share or 100% more than today’s share price, especially as investors start to recognize that JRN’s broadcast segment will likely be generating nearly 80% of consolidated EBITDA and FCF in 2013 and 2014.

 

Excluding any strategic acquisitions, share buybacks, or dividends, we would expect a significant deleveraging of JRN’s balance sheet of up to $140m over 2013 and 2014, which would result in a net debt position of about $100m by year-end 2014.

 

Publishing Segment

 

One risk to our investment thesis is that JRN’s publishing EBITDA declines more rapidly than we expect.  We believe the local information in JRN’s newspapers, especially the Milwaukee Journal Sentinel, which generates almost all of publishing EBITDA, has value to subscribers and advertisers.  The Journal Sentinel has one of the highest penetration rates in the U.S. for larger cities.  JRN’s publishing segment requires very little capital investment and continues to generate strong, although declining cash flows.  JRN’s management has done a good job of downsizing the cost structure of its newspaper operations in line with revenue declines in order to protect its profitability and cash generation.   We do not know for sure where newspaper advertising revenues will bottom out but we believe JRN’s management will be able to generate significant cash flow over the next few years.

 

In early 2012, JRN management established a “pay-wall” to access its newspaper content on the internet and implemented a modest price increase to Journal Register subscribers and gave them access to online newspaper content as well.  So far, the circulation for the Journal Register seems to have remained fairly stable.  In addition, customers can receive an online only subscription to the Journal Register for a reduced price.  It remains unclear how the publishing business model will ultimately play out, but we believe there is some value in JRN’s proprietary local content and that subscribers and advertisers will be willing to pay for this content.

 

While publishing segment EBITDA for 9 months of 2012 was $12m versus $18m in prior year, we note that Q3 publishing EBITDA was closer to flat at $5.5m versus $5.5m in prior year, as Q3 publishing revenue declines moderated to about 4% and publishing operating expenses were reduced by about 4% also.  We are hopeful publishing segment results will decline more slowly going forward but this bears close watching.

 

Warren Buffett has recently made well-publicized purchases of newspaper properties and commented in his latest annual report that newspaper properties that can offer relevant local news to their readerships have a chance to do reasonably well.  This local focus is exactly the strategy that JRN is pursuing with its newspaper and broadcasting assets.

 

Overall, we expect the publishing segment to contribute $20m of EBITDA in 2013-4, or about 20% of consolidated EBITDA, but it could come in modestly lower.  We are certainly not counting on a rebound in the publishing segment but we are hopeful for a slower rate of decline going forward.

 

 

 JRN Broadcasting / Publishing Properties

           

 

 

  Arizona

                 

 

 

  KGUN-TV (ABC) Tucson,

 

           

 

 

    KWBA-TV (CW) – Tucson

 

           

 

 

 KMXZ-FM 94.9 (Contemp) - Tucson

 

         

 

 

 KQTH-FM 104.1 (News/Talk) - Tucson

 

         

 

 

 KGMG-FM 106.3 (Oldies) - Tucson

 

         

 

 

 KFFN-AM 1490 (Sports) - Tucson

 

         

 

   

 

 

             

 

 

 California

               

 

 

 KMIR-TV (NBC) - Palm Springs

 

         

 

 

 KPSE-TV (MNT) - Palm Springs

 

         

 

 

 

Florida

                 

 

 

WFTX-TV (Fox) - Fort Myers/Naples

                 

 

   

 

 

       

 

                     

 

 

 Idaho

                 

 

   

 

 

         

 

 

 KIVI-TV (ABC) - Boise

 

 

         

 

 

 KNIN-TV (FOX) - Boise

 

 

         

 

 

 KSAW-TV (ABC) - Twin Falls

 

         

 

 

 KJOT-FM 105.1 (Rock) - Boise

 

         

 

 

 KOXR-FM 100.3 (Rock) - Boise

 

         

 

 

 KTHI-FM 107.1 (Classic Hits) - Boise

 

         

 

 

 KRVB-FM 94.9 (Adult) – Boise

                 

 

 

 Kansas

                 

 

 

 KLIO-AM 1070 (Oldies) - Wichita

 

         

 

 

 KFDI-FM 101.3 (Country) - Wichita

 

         

 

 

 KICT-FM 95.1 (Rock) - Wichita

 

         

 

 

 KYQO-FM 106.5 (Mexican) - Wichita

 

         

 

 

 KFXJ-FM 104.5 (Rock) - Wichita

 

         

 

 

 KFTI-FM 92.3 (Country) – Wichita

 

 Missouri

 

         

 

                     

 

 

 KSGF-FM/AM 104.1/1260 (News/Talk) -   Springfield

               

 

 

 KTTS-FM 94.7 (Country) - Springfield

 

       

 

 

 KSPW-FM 96.5 (Contemp) - Springfield

 

         

 

 

 KRVI-FM 106.7 (Variety) - Springfield

 

         

 

   

 

         

 

                     

 

 

Michigan

               

 

 

WSYM-TV (Fox) - Lansing

 

 

         

 

                     

 

 

 Nebraska

               

 

 

 KMTV-TV (CBS) – Omaha

 

 

         

 

 

 KEZO-FM 92.3 (Rock) - Omaha

 

         

 

 

 KSRZ-FM 104.5 (Contemporary) - Omaha

 

       

 

 

 KQCH-FM 94.1 (Contemporary) - Omaha

 

         

 

 

 KKCD-FM 105.9 (Rock) - Omaha

 

         

 

 

 KXSF-AM 590 (Sports) - Omaha

 

         

 

                     

 

 

 Nevada

                 

 

 

KTNV-TV (ABC) – Las Vegas

 * KTNV-TV (NBC) - Las Vegas

           

 

                     

 

 

Oklahoma

 

KFAQ-FM - Tulsa

KVOO-FM - Tulsa

KXEL-FM - Tulsa

               

 

   

 * KFAQ-AM 1170 (Tulsa)

           

 

   

 * KVOO-FM 98.5 (Tulsa)

           

 

   

 * KXBL-FM 99.5 (Tulsa)

           

 

                     

 

 

 Tennessee

               

 

 

WTVF-TV (CBS) - Nashville

 

WNOX-FM (Country) – Knoxville

 

           

 

                               
   

WCYQ-FM (Contemporary) –     Knoxville

   
   

 WWST-FM 102.1 (Contemporary) - Knoxville

   
   

WKHT-FM 104.5 (Contemporary) -     Knoxville

   

 

   

 

                                                                                                                                                                                                                                                                                                                     
     

Wisconsin

     

 

     

 

     

WTMJ-TV (NBC) - Milwaukee

     
     

WGBA-TV (NBC) - Green Bay

     

 

     

WACY-TV (MNT) - Green Bay

     

 

     

WTMJ-AM 620 (News/Sports/Talk)       - Milwaukee

     

 

     

WLWK-FM 94.5 (Classic Hits) –       Milwaukee

     

 

     

Journal Sentinel /       JSOnline.com - Milwaukee

     

 

     

Lake Country Publications -       Hartland

     

 

     

NOW Publications -       Southeastern Wisconsin

     

 

     

Merrill Foto News - Merrill

     

 

     

Rhinelander North Star Journal       - Rhinelander

     

 

     

Waupace Country Post - Waupaca

     

 

     

Buyers Guide Group, Silent       Sports, Wisconsin State Farmer, Wisconsin Horseman's News

     

 

 

 

   

 

           

 

   

 

           

 

   

WKTI-AM 1040 (Knoxville)

 

 

 

 

 

 

 

         

 

 

 

                 

 

 

 

               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strong Cash Flow Generation and Solid Business Model

 

JRN’s broadcasting and publishing assets produce large amounts of free cash flow with limited capital expenditure and working capital requirements.  From 2009 through nine months of 2012, JRN generated almost $200m in free cash flow or over 50% of JRN’s EV prior to the two recent broadcasting acquisitions in 2012.  Much of this was through an extremely difficult economic environment.  We believe the local-content focus of JRN’s television, radio, and newspaper assets will be an important factor in protecting their business franchises and their free cash flow generation capabilities.

 

JRN has a high ROIC, non-capital intensive business, where capital expenditures from 2008 to 2012 have averaged $10m per year as compared to cash from operations of nearly $70m per year, resulting in large amounts of free cash flow generation.

 

Strong Focus on Local Market Information, Diversified Across Many Local Markets, is A Major Asset and Key Competitive Strength

 

The intense local focus of JRN’s broadcasting and publishing segments is a major asset and key competitive strength.  Buffett talks about this in his recent shareholder letter with respect to newspapers.  The “localness” allows viewers or listeners or subscribers to access relevant and important local information.  It also allows advertisers to quickly reach these groups, as evidenced by heavy spending on local television advertising in highly contested political and issue contests, where both sides were desperate to reach local voters.  We think this speaks to the effectiveness of television’s advertising medium. 

 

We think JRN’s television, radio, and newspaper assets which primarily benefit from local market advertising dollars have a solid competitive position.  The relevant local information and programming which they provide has some unique characteristics and is not easy to replicate.  Also, JRN’s relationship with local advertisers provides another barrier to entry.

 

In effect, an investment in JRN is an investment in the growth of its underlying markets, such as Nashville, Boise, Milwaukee, Palm Springs, Las Vegas, Green Bay, etc. and we think this is an attractive investment.  We believe the prospects for the television and radio industries are decent over the next three years.

 

Solid Balance Sheet and Expected Steady Improvement in Net Debt Position.

 

Despite re-borrowing to complete the two recent acquisitions and repurchase the Class C shares, JRN continues to have a solid balance sheet.  JRN consistently reduced its net debt position over the past twelve quarters through a very tough economy and we believe it can continue to do so over the next couple of years.  At 3/31/09, JRN had a net debt position of $197m and this was rapidly reduced to $35m by 6/30/12.  JRN was able to generate a significant amount of cash flow even in the very depressed economic conditions of 2009.  We believe JRN’s net debt position could improve by $70m in both FY13 and FY14, absent additional acquisitions, buybacks, or dividends. 

 

Industry Consolidation Prospects

 

We believe that JRN’s attractive portfolio of broadcasting related assets, including 35 radio stations and 15 television stations, are being substantially under-valued at current market prices.  We believe both the television and radio industries retain significant competitive advantages in allowing advertisers to reach customers in their local markets.

 

We believe that JRN’s broadcasting assets could be attractive to a potential strategic purchaser or a private equity investor.  Such an acquisition is probably unlikely given management’s super-voting position in JRN shares but we also believe JRN’s management team is frustrated by its low share price and is likely to take increasingly aggressive shareholder-friendly actions if the share price continues to remain depressed.

  

2011 Results Provide a Solid Baseline for 2013 Results

 

For JRN, even years like 2010 or 2012 are stronger due to incremental political, issue, and Olympic advertising and it makes sense to project 2013 results from 2011 results.  In 2011, JRN achieved EBITDA of $63m.  There has not been a lot of organic growth in JRN’s broadcasting segment in recent years and we are not planning on much during 2013.  Instead, we are estimating $65m of EBITDA for 2013 and adding $30m to reflect the recent broadcasting acquisitions.  This yields about $95m in EBITDA estimated for 2013.  We believe 2014 results would likely exceed 2013 results by $10m in EBITDA or more due to incremental political, issue, and Olympic advertising dollars.

 

Large Share Repurchase Program and Excellent Potential for Share Repurchase or Dividends

 

JRN currently has a $45m share repurchase program in place which represents over 15% of JRN’s current market cap.  We believe JRN’s management is keenly aware of the current depressed valuation of its share price.  We believe that if JRN’s share price remains depressed, after management initially reduces net debt from the two recent acquisitions, there could be a major acceleration of the share-repurchase program and/or a major dividend program.

 

Accrued Employee Benefit Obligations

 

JRN has $88m of accrued employee benefit obligations as of 9/30/12.  These represent retirement plan obligations primarily to former newspaper employees and the program has been suspended.  We expect these obligations to cost JRN about $4-$5m per year over the next 10 years.  These obligations have been inflated in recent years due to a low discount rate which increases the actuarial obligation.  We do not treat these as debt obligations.

 

Conclusion and Target Price

 

Based on 10x our average annual FCF estimate of $70m for 2013-14 less a projected $100m net debt position at year-end 2014, we believe JRN could trade for a market cap of close to $600m or $12 per share or more versus $5.60 per share today (+100%).  Based on 7x our average EBITDA estimate of $100m for 2013-14 less $100m of net debt projected at year-end 2014, also results in a market cap of $600m or about $12 per share.  If JRN’s broadcasting and publishing assets perform as we expect, we think our target prices can be achieved.  Further, JRN’s assets are well-established in attractive markets and could be attractive to a strategic acquirer.  We believe JRN could be purchased at a large premium to today’s share price and still be highly accretive to an acquiring company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major shareholders

Gamco Investors

5,881

Class A

13.5%

MDSC Mgmt LP

5,785

Class A

13.3%

Dimensional Fund

3,248

Class A

7.5%

Troob Capital Mgmt

3,219

Class A

7.4%

Vanguard Group

2,347

Class A

5.4%

Luxor Capital Group

2,072

Class A

4.8%

Steve Smith, CEO

1,394

Class B

19.6%

Andre Fernandez, CFO

    244

Class B

3.5%

Elizabeth Brenner

    302

Class B

5.6%

David Meissner

559

Class B

7.9%

         

 

** Class B shares are entitled to 10 votes per share.

 

Avg   Daily Volume

Price per share

$5.60

   

184,000

 

Shares outstanding

50

 

 

Market value

$280

 

 

 

52 week range

$2.70

$5.86

 

             
 

Income statements

           

9mos

9mos

FYE 12/31

2006

2007

2008

2009

2010

2011

2011

2012

Sales

$623

$484

$452

$366

$377

$357

$262

$276

Gross profit

$286

$

$

$143

$169

$155

$111

$125

Adjusted EBITDA (1)

$134

$102

$79

$56

$78

$64

$44

$53

Adjusted EBIT (1)

$105

$73

$50

$30

$53

$41

$26

$33

Net income

$64

$110

($224)

$4

$34

$22

$14

$18

EPS – continuing ops

$0.90

$1.65

($4.36)

$0.05

$0.59

$0.37

$0.22

$0.32

Adjusted EBITDA %

21.5%

21.1%

17.5%

15.3%

20.7%

17.9%

16.8%

19.2%

Cash   flow statements

   

 

FYE 12/31

2006

2007

2008

2009

2010

2011

2011

2012

Net income

$54

$43

($224)

$4

$34

$22

$14

$18

Dep & amort

$29

$29

$29

$26

$25

$23

$17

$17

Non cash adjust

$5

$2

$271

$23

$8

$14

$10

$12

Working capital chgs

$2

($7)

($4)

$22

$5

($14)

($15)

($5)

Cash fr operations

$90

$67

$72

$75

$72

$46

$26

$42

Capital expenditures

($22)

($34)

($22)

($8)

($9)

($11)

($8)

($8)

Dividends

($20)

($20)

($19)

($1)

$0

$0

$0

($6)

Share repurchases

($34)

($102)

($45)

$0

$0

($4)

($2)

($4)

Acquisitions

$0

($12)

($25)

($4)

$16

$2

$0

($12)

Est. free cash flow

$26

$13

$50

$67

$62

$35

$18

$34

Balance sheets

 

 

FYE 12/31

2006

2007

2008

2009

2010

2011

9/23/12

 

Cash

$

$6

$4

$3

$3

$3

$2

 

Total assets

$857

$857

$543

$473

$432

$418

$412

 

Total debt

$179

$183

$225

$152

$75

$42

$55

 

Shareholder equity

$488

$487

$168

$171

$208

$205

$195

 
                 

Net debt

$176

$177

$221

$149

$72

$39

$36

 
 

 

Shares outstanding

66.8

66.8

51.9

50.4

50.8

51.1

51.1

 
                         
 

 

 

Valuation & Valuation Ratios

 

Market value

$280

EV / Adjusted EBITDA

4.5

Net debt

$53

Enterprise Value / Adjust EBIT

6.8

Preferred

$0

Enterprise Value / Cash from Ops

5.2

Enterprise value

$333

Enterprise Value / Revenues

88%

 

 

Price per share

$5.60

 

Shares outstanding

50

 

Market value

$280

Avg Daily Volume

 

   

132,000

 

52 week range

$3.94

$5.86

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

                   
 

 

 

 

                   

 

 

 

 

 

                   

 

                                               

 

 

Detailed Quarterly Income Statements

 

 

12/09

3/10

6/10

9/10

12/10

3/11

6/11

9/11

12/11

3/12

6/12

9/12

 

Broadcasting Revenue

$46

$43

$47

$48

$56

$42

$46

$47

$51

$44

$55

$59

 

Publishing Revenue

     $50

$45

$47

$43

$47

$42

$44

$41

$44

$38

$41

$39

 

                     

 

 

 

Total Revenue

     $96

$87

$94

$92

$104

$84

$90

$88

$95

$82

$96

$98

 

                     

 

 

 

Broadcasting expenses

      $22

$22

$22

$25

$23

$22

$22

$24

$24

$23

$23

$27

 

Publishing expenses

       $30

$29

$29

$29

$30

$28

$27

$28

$27

$26

$26

$26

 

Total operating expenses

$53

$51

$51

$53

$53

$50

$49

$52

$51

$49

$49

$53

 

                     

 

 

 

Selling and admin expense

     $27

$27

$30

$28

$32

$28

$29

$28

$30

$28

$33

$31

 

Total operating and selling and   admin expense

 $80

$78

$81

$81

$85

$78

$79

$80

$81

$77

$82

$84

 

Operating earnings

     $15

$9

$14

$11

$19

$6

$12

$8

$14

$6

$14

$14

 

Dep. & Amort.

 $7

$6

 $6

$6

$6

$6

$6

$6

$6

$6

$6

$6

 

Total EBITDA

$22

$15

$20

$17

$25

$12

$18

$14

$20

$12

$20

$20

 

                     

 

 

 

 

 

 

 

 

 

                   

 

 

 

                     

 

 

 
                     

 

 

 
                     

 

 

 
                                                   

 

 

 

 

 

 

 

 

Detailed Quarterly Balance Sheets

 

 

9/09

12/09

3/10

6/10

9/10

12/10

3/11

6/11

9/11

12/11

3/12

6/12

9/12

 

Cash and equivalents

$3

     $3

$3

$3

$4

$3

$3

$3

$2

$3

$3

$2

$2

 

A/R

$61

     $63

$55

$57

$58

$55

$47

$51

$51

$57

$49

 $55

$57

 

Inventories

$3

     $3

$3

$3

$3

$1

$1

$1

$2

$2

$3

$3

$3

 

Prepaids and other

$27

       $18

$18

$12

$20

$16

$17

$13

$11

$11

$10

$10

$10

 

 

 

                   

 

 

 

Total current

$95

     $88

$77

$76

$84

$75

$68

$68

$67

$72

$65

$70

$72

 

 

 

                   

 

 

 

PPE, net

$207

      $202

$197

$194

$190

$180

$177

$174

$171

$168

$165

$163

$160

 

Other asset

$187

       $183

$181

$177

$176

$176

$176

$170

$167

$178

$177

$172

$182

 

Total assets

$489

$473

$456

$448

$453

$432

$420

$413

$407

$418

$406

$404

$412

 

 

 

                   

 

 

 

A/P

$24

     $24

$23

$24

$24

$23

$22

$20

$19

$21

$20

$22

$22

 

Accrued expenses

$18

 $19

$17

$20

$18

$17

$13

$16

$15

$18

$14

$18

$15

 

CPLTD

$1

     $1

$1

$118

$1

$1

$1

$1

$1

$0

$0

$0

$9

 

Def revenue

$16

 $15

$15

$15

$16

$14

$15

$15

$15

$15

$15

$16

$17

 

Other

$20

$18

$

$14

$17

$24

$14

$12

$10

$12

$0.2

$8

$11

 

 

 

                   

 

 

 

Total current

$79

 $78

$71

$191

$76

$79

$65

$64

$60

$66

$58

$67

$74

 

 

 

                   

 

 

 

Accrued emp bene.

$62

$63

$62

$62

$61

$59

$58

$57

$56

$90

$90

$88

$86

 

LTD

$172

    $151

$135

$118

$112

$75

$73

$61

$55

$41

$38

$21

$46

 

Other liabilities

$9

$10

$9

$10

$10

 

$13

$12

   

$14

$14

$8

 

 

 

                   

 

 

 

Shareholder equity

$165

$171

$178

$187

$193

$209

$212

$219

$222

$206

$206

$213

$195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net   debt

$169

$148

$132

$115

$108

$72

$70

$58

$53

$38

$35

$19

$53

 

 

 

                   

 

 

 

 

 

                   

 

 

 
 

 

                   

 

 

 
 

 

                   

 

 

 
                                                     

 

 

 

 

 

 

 

 

 

 

Segment Reporting

 

Revenues

 

 

FY06

FY07

 FY08

FY 09

FY 10

FY 11

9mos

FY 11

9mos

FY 12

Broadcasting

$239

$218

$210

$172

$194

$186

$135

$158

 

Publishing

$285

$266

$242

$194

$183

$171

$127

$118

Corporate

($0.6)

($0.4)

($0.2)

($0.2)

($0.4)

($0.3)

($0.2)

($0.5)

Total revenue

$523

$484

$452

$366

$377

  $357     

$262

$276

Operating   Earnings

 

 

 

       

 

 

 

 

 

 

FY06

FY07

 FY08

FY 09

FY 10

FY 11

9mos

FY 11

9mos

FY 12

Broadcasting **

$66

$41

$36

$23

$44

$31

$21

$33

Publishing **

$35

$31

$14

$14

$18

$16

$10

$5

Corporate

($9.0)

($8.5)

($8.3)

($7.2)

($8.8)

($7.1)

($5.7)

($5.4)

Total op earnings

$92

$64

$41

$30

$53

$40

$26

$33

                   

** Before impairment charges.

 

Dep   & Amort.

 

 

 

       

 

 

 

 

 

 

FY06

FY07

 FY08

FY 09

FY 10

FY 11

9mos

FY 11

9mos

FY 12

Broadcasting

$13

$13

$13

$13

$13

$12

$9

$10

Publishing

$13

$13

$13

$12

$11

$10

$8

$7

Corporate

 

 

 

$0.0

$0.6

$0.6

$0.5

$0.5

Total D&A exp.

$29

$29

$29

$26

$25

$23

$18

$17

                   

 

EBITDA

 

 

 

       

 

 

 

 

 

 

FY06

FY07

 FY08

FY 09

FY 10

FY 11

9mos

FY 11

9mos

FY 12

Broadcasting

$79

$54

$49

$36

$56

$43

$31

$42

Publishing

$48

$44

$27

$26

$30

$26

$18

$13

Corporate

 

 

 

($7.2)

($8.2)

($6.5)

($5.2)

($4.9)

Total EBITDA

$134

$102

$79

$55

$78

$63

$43

$50

                   

 

 

 

 

 

 

 

 

Industry Comparable Public Companies

 

     

Journal Communications (JRN)

Belo Corp (BLC)

Beasley Broadcast Group (BBGI)

Gray Television (GTN)

Nexstar   Broadcasting (NXTR)

 

 

     

Broadcasting and publishing co   with 15 television stations affiliates of ABC (5 stations), NBC (3) and CBS   (2) and 35 radio stations and Milwaukee Sentinel Journal.

Owns 20 television stations in 15   major markets affiliated with CBS (5 stations), NBC (4), ABC (4), and others.

 

Owns 36 television stations in 30   markets, including 17 CBS, 10 NBC, 8 ABC, and 1 Fox.

 

   
     

Owns 43 radio stations in markets   including Atlanta, Boston,

Ft. Myer, Las Vegas

Owns 55 television stations and 11   digital multicast channels in 32 markets.

   
     

 

 

   
     

 

 

   
     

 

 

   

Cash

$5

$9

$12

$45

$42

   

LTD

$55

$750

$117

$820

$919 (P.F.)

   

 

 

 

   

Price

$5.5

$8.50

$5

$4

$15

   

Shares

50

103

23

57

29

   

Market Cap

$275

$860

$115

$230

$433

   

Enter. Value (EV)

$325

$1,600

$220

$1,000

$1,310 (P.F.)

   

 

 

 

   

Rev - LTM

$380

$715

$100

$408

$349

   
             

 

 

 

   

Adj EBITDA – 2012

$77

$260

$30

$176

$183 (P.F)

 

Adj EBITDA - 2011

$64

$206

$26

$96

 

 

Adj EBITDA – 2011-2

$70

$230

$28

$145

 

 

EV to Adj EBITDA   2011-2

4.6x

7.0x

7.3x

6.9x

7.2x

 

 

EV to LTM Revenues

0.9x

2.2x

2.2x

2.5x

2.9x

 

LTM Free Cash Flow

$50

 

 

 

 

 

                             

 

Catalysts

  1. Low valuation (15%+ unleveraged FCF yield; 4.6x LTM EBITDA; 0.86x LTM revs).
  2. Steady deleveraging of balance sheet (p.f. $250m net debt or about 2.5x p.f. EBITDA). Net debt could decline to about $100m at FYE 14.
  3. Projected FY13-14 EBITDA of $100m and FCF of $70m (5.5x EBITDA and 16% FCF yield unleveraged).
  4. Potential stabilization of publishing assets in FY13.
  5. Share repurchases and dividends from excess cash and FCF generation.
  6. Possible acquisition of JRN by a strategic or financial purchaser.
  7. Increased analyst coverage and recognition of JRN as primarily a broadcasting company.

Risks

 

  1. The U.S. economy declines, including the middle markets that JRN’s broadcasting and publishing assets serve.
  2. JRN’s publishing segment decline accelerates or is greater than expected.
  3. New technologies impact JRN’s television and/or radio revenues and cash flows more than anticipated.
  4. Misallocation of capital into a poor acquisition. 
  5. Recent acquisition of Nashville television station performs poorly.

 

 

Disclaimer

 

Disclaimer:  We own shares of JRN.  We may buy or sell these shares at any time without notice.  The information in the write-up is believed to be correct as of the date written but VIC members should do their own verification of this information and analysis of this potential investment.  We undertake no obligation to update this write-up if new information arises at a future date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

see above
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