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Grupo Televisa: This Bet on Spanish Television Will Pay Off

March 07, 2012 | About:
Grupo Televisa (TV) is the largest producer of Spanish language content in the world, as well as a broadcaster, programmer and satellite service provider. It owns two professional soccer teams and is involved in gaming, live entertainment and concert production. It also operates in publishing, distribution, cable television, feature film and internet markets. It is a giant in Mexico and its enterprise has extensive reach to Central and South America.

Recently it has made entries into the Spanish-speaking U.S. and Puerto Rican markets. It has also decided to add mobile services to its repertoire, which will cement its dominance over all aspects of communications in Mexico and will set it up for penetration into markets beyond those borders. While it may have some difficulty in the short term receiving the regulatory approval for this move, the company has always managed to maneuver itself into a position where it can exploit new avenues for revenue and increase market share. There is no reason to believe that it will not meet with success in the long term. Televisa’s historic record of success and domination, however distasteful to some observers, points to future success in any area it plans to enter. Resistance is futile.

Grupo Televisa trades around $21, with a year high of $25.48 and low of $17.03. The price earnings ratio is 20/90 and earnings per share are $1.02. The dividend yield is .70%. The company has total cash of $1.82 billion and total debt of $4.49 billion. Book value per share is $6.54.

The current ratio is 2:17, which indicates its current debt burden may be difficult for the company. The company will probably take steps to restructure its current debt situation in order to reduce the possibility of being unable to meet its current liabilities as they come due.

Fourth quarter 2011 results showed a 17% decrease in net profits from the same period in 2010. Quarterly profits fell short as a result of foreign exchange losses and interest expenses for borrowing. Revenues from broadcast advertising, pay-TV networks, and satellite television services all showed increases in the fourth quarter of 2011 as compared to the same period in 2010. Net income decreased by 10.3% in the quarter, which was also explained by greater depreciation and interest expenses and by a weaker peso. The cable and telecommunications segment increased 16% due to an increase of subscribers in video, voice and data services among its three cable companies.

During 2011, Televisa’s content outperformed all of its platforms. Eight of the top 10 rated shows in Mexico on over-the-air television in 2011 were produced and transmitted by Televisa. Televisa’s concentration on the content portion of its business is in response to the ability of Televisa to take advantage of expanding multiple platforms where content can be exhibited and transmitted. The programming exports sale increase of 34.5% in the quarter and the full year sales increased 31.3% was attributed to increasing royalties from Univision and revenues received from Netflix (NFLX). Sources of content revenue are from advertising, network subscription revenue, licensing and syndication. Revenues from its soccer teams, feature film distribution, gaming and radio contributed to an 8.2% growth in these segments in the fourth quarter of 2011 compared to the same period for 2010.

The growth in programming exports was driven by its content being broadcast by Univision in the U.S. and Puerto Rico. Televisa increased its ownership of BMP, the controlling company of Univision to 7.1% from 5% in the fourth quarter of 2011. Televisa continues to make its content more appealing to the Hispanic audience in the U.S.

In 2010 Televisa made an investment in Univision to accommodate that segment of the U.S. population seeking Spanish broadcast content. Univision gained exclusive U.S. Spanish language digital rights to Televisia’s programming. Univision acquired the right to broadcast and transmit Televisa’s online, network and pay television programming on Univision’s three current television networks and any of its future Spanish language networks and interactive platforms. The cost to Televisia was $1.2 billion giving it a 5% equity stake and debentures convertible into an additional 30% stake of Univision in the future with an option to acquire a further 5%. Univision reaches approximately 94% of Hispanic households in the continental U.S. and Puerto Rico through 62 television stations and 73 radio stations. Its portal www.univision.com is the premier Spanish language Internet destination in the U.S.

The company is also expanding its presence in other markets and other languages. The company is exploring opportunities internationally in order to build audiences and strategic alliances. Televisia currently has alliances with Sony Pictures International for cost reduction in distribution in European markets and with Lions Gate (LGF) to develop English language format television for the U.S. market.

Capital expenditures in 2011 were $791 broken down to: $242 million for satellite, $143 million for broadcasting and other and $406 million for cable and telecommunications segments. Televisa plans a 7% increase in capital expenditures to $850 million in 2012 to expand its cable and satellite business.

The company’s go forward plan is to continue its capital investments in its content distribution and telecom business to enhance shareholder returns. Growth in the content business for 2012 is estimated to be between 6% and 7%. Broadcasting growth is expected to be 8.9% for 2012.

The company also anticipates entering Mexico’s mobile segment. The company expended $450 million on the Iusacell investment in 2011. Televisa’s proposed ownership in Iusacell would be its entry into the mobile market. Iusacell has more than four million subscribers and its network covers 70% of the geographic market. The total cost of the 50% acquisition of Iusacell is $1.6 billion. This acquisition would give would give Televisa approximately 5% of the Mexican mobile market behind America Movil’s (AMX) 71% and Telefonica SA’s (TEF) 21%.

Iusacell was purchased by Ricardo Salinas in 2003. Mr. Salinas controls TV Azteca SAB (AZTEF.PK) which has a 30% market share of the Mexican markets as compared to Televisa’s 70%. The control by these two companies of the Mexican broadcasting market will provide both companies with an opportunity to advertise Iusacell’s services.

Iusacell filed for bankruptcy protection in 2010 after it failed to compete with Telcel a wholly owned subsidiary of American Movil, owned by Carlos Slim who has a strangle hold on both the traditional and mobile communications markets in Mexico owning an estimate 80% of the fixed line communications in Mexico through Telmex (TMLSF.PK) and 70% of the mobile market through Telcel. Carlos Slim’s overtures into the broadcasting market have been rebuffed in the past. In answer, Slim has refused to advertise Telmex and Movil’s services through Azteca’s and Televisa’s broadcast channels. Prior to 2011 advertising revenues from Slim’s companies represented 3.8% of Televisa’s advertising revenues. Movil and Telmex have filed anti trust complaints against Televisa and Azteca citing monopolistic broadcasting. Televisa and Iusacell have filed antitrust complaints against America Movil and Telmex making much the same accusations in the telecommunications markets.

The company has had its investment in Iusacell blocked by the equivalent of the Mexican competition bureau (Cofeco). Televisa continues to pursue a way to have access to the revenue streams presented by the mobile marketplace. The antitrust watchdog Cofeco’ s position was that the deal to buy half of Iusacell would create an incentive for Televisa and Iusacell’s sister company, broadcaster TV Azteca to fix advertising prices as Televisa and Azteca dominate the broadcast market. Cofeco said it might allow the deal if the companies pledge not to exploit market share.

The company’s stock will probably continue to trade within its year high and low range for the next 6 to 12 months. The only two negatives about the company are its current debt situation and its acquisition costs. A company with Televisa’s history, reputation and assets will have no problem restructuring any debt obligations it may have. When the company resolves its debt issues, the capital expenditures and acquisition costs translate to performance, its revenue and earnings growth will contribute to more attention being paid to the inherent value in the company’s stock. The dividend yield may be impacted by any debt restructuring the company may do. The stock trades at roughly eight times multiple to book value and pays a high yield in its current price range. Right now it is a buy for dividend yield. In the near future it may be a buy for capital appreciation.

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Rating: 3.6/5 (17 votes)

Comments

Los padres
Los padres - 2 years ago
Good in depth analysis!

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