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A Remarkable Hidden Asset of Some Newspapers - Classified Ventures LLC

January 31, 2013 | About:
While doing some research for my next article, I stumbled across a great company that isn't publicly traded (not directly). It does have its numbers on file with the SEC though.

Classified Ventures LLV (CV) is owned by A.H. Belo Corp. (AHC), Gannett Co. Inc. (GCI), Tribune Company (TRBAA), The McClatchy Company (MNI) and The Washington Post Company (WPO).

CV owns and operates Cars.com, Apartments.com and HomeGain.com. CV is also affiliated with HomeFinder.com.

Unlike their subsidiary, the newspapers that own the company are publicly traded. Their interest in the earnings of CV is hidden from view by GAAP accounting. In some cases, the market cap of the parent may be less than the fair value of the minority interest.

35024_1359628474OVtb.png

Classified Ventures LLC:

  • Is growing at a double-digit compound rate.
  • Currently generates revenue of roughly $400 million.
  • Has no debt and a mountain of excess cash.
  • Returns about half of its earnings to its owners through dividends.
  • Sports a ROE in excess of 50% (without debt!).
  • Has an after-tax net margin of 15% to 20%.


35024_13596285030UOd.png

Based on the current market value of AWAY, MOVE and the price CoStar paid to acquire LoopNet.com, I believe Classified Ventures has a fair market value in excess of $1 billion.

McClatchy, Tribune and Gannett each own about 25% of CV. The Washington Post company owns about 15%.

That’s a remarkable hidden asset for some of these companies.

Read more:

2011 SEC filing of CV

About CV

Article about CV

Forbes: Tribune’s minority stake in the Food Network, CareerBuilder and CV worth $2.26 billion.

About the author:

batbeer2
I define intrinsic value as the price I would gladly pay to own the business outright. With current management in place. For most stocks, that value is 0. As of September 2012, I'm the author of the monthly Buffett-Munger Best Bargains Newsletter. I can be reached at fvandenbroek AT gurufocus DOT com

Visit batbeer2's Website


Rating: 3.8/5 (10 votes)

Comments

AlbertaSunwapta
AlbertaSunwapta - 1 year ago
So do you own anything mentioned here?
batbeer2
Batbeer2 premium member - 1 year ago
WPO.

I'm taking a serious look at AHC. Hope to write about that one sometime this weekend.
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Depending on CV's liquidity, the asset value also makes MNI's situation seem far less dire. ;-)
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
On the issue of free online news vs newspapers, the issue is much like the argument that says; why I don't buy books, because I can get them for free at the library. The reality is that people taking that stance, don't read books. Today people say why subscribe to newspapers when their news is free online. Well, the reality is that people no longer sit down for an hour to read news stories.
batbeer2
Batbeer2 premium member - 1 year ago
>> Depending on CV's liquidity, the asset value also makes MNI's situation seem far less dire. ;-)

Yes.

Also, MNI seems to have some other, similar, assets.

You want to advertise used cars and:

- you either go through the newspapers and they take a cut

- or you go online and they take a cut.

The last one is less obvious from the numbers (for now).

It seems to me the newspapers saw this coming. They didn't want to kill each other in a winner-take-all online bloodbath so they formed these consortiums 12-15 years ago. Now they've got the classified advertising market cornered... again. This time round it's a national monopoly.

CV spits out a mountain of cash. They've started returning that cash to the owners. That's a lot of cold cash coming in for the likes of MNI. If the dividend stream keeps growing at this rate, MNI could make it out of the woods in fine shape. They may not need to sell out. Running a website for 25m visitors costs a lot less than printing and distributing a newspaper for the same number of readers.

Less than a handful of businesses I've looked at are this profitable. PMD, UG and MCO come to mind.
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
On consortiums, I'd bought JCI Technologies back in the mid 1990s. It should have had the whole market.

http://en.wikipedia.org/wiki/JCI_Technologies
batbeer2
Batbeer2 premium member - 1 year ago
The JCI story is strange and tragic..... You've been looking at the space a decade or two longer than I have.

Still trying to find time to write about AHC. You back out 40m of excess cash and 70m of RE held for sale and you get CV and the newspaper for free.
sharonh
Sharonh - 1 year ago
Not sure why CV is considered "hidden" - been out there for quite some time. Tribune is in the process of selling its stake, however. Gannett, McClatchy and Tribune are also part owners of CareerBuilder.
batbeer2
Batbeer2 premium member - 1 year ago
Hi Sharonh

Thanks for your comment.

As an operation, CV itself is there for all to see. As an asset, I believe it's profitability is obscured by GAAP. The earnings of CV are not consolidated into the earnings of the parent companies.

One definition of a hidden asset (investopedia):

Assets that may be undervalued on a company's balance sheet and therefore not incorporated into or reflected in the company's share price.

I believe the balance sheets of the newspapers do not reflect the fair value of the subsidiary. Some investors may be unaware of this component of intrinsic value.
batbeer2
Batbeer2 premium member - 1 year ago
The annual report is out.

In 2012, the company paid out a dividend of $ 100m without taking on any debt.

They also grew revenue from 300m to 350m.

I'm impressed. My original estimate of fair value ($1B) implies a 10% yield on 2012 dividends.

I'm glad I own some of this through A. H. Belo. It should be interesting to track the cash as it makes its way onto the balance sheets of AHC, GCI, WPO et al.
batbeer2
Batbeer2 premium member - 6 months ago

Another year of profitable growth for Classified ventures LLC. After backing out apartments.com which they recently sold, revenue and income have grown at roughly 20%.

FWIW, I think the fair value of CV, even after the sale of apartments.com, is at least $1 billion. Apartments.com was 30% of their business and it wasn't growing. It sold for $585m.

The remainder of the business is earning roughly $70m per annum on about $100m worth of equity (no debt).

A company that is able to grow earnings on very little equity, will spit out a mountain of excess cash. CV paid its owners $90m worth of dividends (again, without taking on debt).

This is an interesting franchise.

batbeer2
Batbeer2 premium member - 1 month ago

OK, Gannett is now paying .8 billion for the part of Cars.com it does not already own.The deal values cars.com at $2.5 billion.

Including the price paid for apartments.com, Classified Ventures has now been monetized for roughly $3 bilion. My estimate of fair value was off by about 200%.

Off the top of my head, A. H. Belo will collect about $75 million if and when the deal closes. That is a significant chunk of change for a company with a $225m market cap and no debt.

stevenmramsey
Stevenmramsey - 1 month ago

Do you still own it only through AH Belo?

For the copycats out there, the Gannett avenue seems like an interesting way to benefit from both Icahn's activism and CV's hidden value.

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