Obie Media OBIE
April 29, 2004 - 12:06pm EST by
2004 2005
Price: 3.45 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 21 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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One of the recent casualties of the recession was various parts of the advertising-media industry. With the recent pickup of the economy, we can expect a normal expansion in these areas. Our selection, Obie Media has been public since 1996 serving the outdoor advertising industry thru the billboards and transit advertising divisions.

The out-of-home advertising market spends over $5 billion and grows at about 8% a year. Obie a small player, specializes in local markets serving over 2000 accounts including names like Nike, Pizza Hut, McDonalds, Gap, Nordstrom, Coca-Cola among others.

The smaller of the divisions, has about 1200 billboards located in the Northwestern part of the US and is quite stable. While accounting for only 15% of revenues it has ebidta margin of about 40% with a high occupancy and renewal rate. Recently, sales

for billboard product went for about 13 times cash flow. Obie’s billboards are considered higher quality and using a 13 times figures of $3.3 million would give us $43.6 million in market value less $14.8 mill in debt results in $28.8 million value.. Thus with about 5.7 million shares out, this part of the company would be worth over $4 a share.

And now for the rest of the story. Accounting for the gut of the company is the bus transit division. Simply put, the company wraps up buses with advertising. It does this with local transit authorities which put out for bid multi-year contracts for the locals’ fleet of buses. Bids usually include a minimum payment and a percentage of sales generated
(50% is normal). Advertising on buses is usually sold for short term contract periods to customers with a growing percentage becoming long term contracts.

Over last few years, Obie has become vertically intergrated. Offering its advertising

customers consulting as to placement of which adds on different routes as well as in- house design, layout and production services it hopes to add to transit contract margins. A new state of art printing facility was opened last year additionally to add to the value added services available.

Recently Obie had transit contracts with 39 municipalities covering about 8000 buses. Potential revs per bus are $10,000 resulting in a fully rented capacity of $80 million.With a recent recessionary transit run rate of approximately $40 million, obviously a better economy would go a long way in bringing Obie back to historical margins.

The 2001 and 2002 recessionary years caused Obie difficulties with several of their transit contracts as advertising sales declined, resulting in the company exiting several markets and hit with financial penalties . Other contracts were successfully renegotiated that resulted in upfront fee reductions. New contracts have a guaranteed monthly payment and then a sharing of the add revenues at year end(normally 20%-50%).

On Jan 15, the company reported a new financing facilty of $26 million to pay off old transit penality indebtedness and fuel corporate expansion. With about 90 salesman out selling advertising product and an improving economy, Obie reported that total booked sales are pacing 24% ahead of last year and that the company has already booked 82% of its budgeted sales for 2004.

So the big question is what can we expect from Obie in the 2004 and 2005 years.

On its recent first quarter conference call management said it expects to have an excellent year. Annualizing first quarter data suggested a $10 million revenue increase for the current year. Using the back of the envelope suggests a $50 million sales year and then employing a 12% ebidta would give us $6 million. Subtracting $2 million of depreciation and amortization with another $2 million of interests leaves us with $2 million pretax. A $9 million tax loss shield allows the $2 million to net income. With 5.8

million shares, eps is estimated at $.30. With the economy gathering steam and advertising a lagger, 2005 should do better.

Valuation based on a conservative media cash flow multiple of 10, results in $60 million less debt of $20 million for about a $40 million evaluation or $6.89 per share.

A 20 p/e multiple of an estimated $0.30 eps also gives us $6.00. From 1997 thru 2000, the p/e multiple was well over 30 times earnings.

Viacom and Lamar Advertising resulting spoke about advertising business that is picking up. A rising tide……..


Picup in economy almost invariably benefits the advertising media sector
and with assets historically undervalued, Obie should play catchup over the next several months.
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