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Keep an Eye Out for This Growing Mexican Media Empire

January 26, 2014 | About:
Patricio Kehoe

Pato Kehoe

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Television broadcasting in Mexico has sustained a steady growth rate over the past few decades, and today the industry giants generate billions of dollars in profits. Grupo Televis S.A.B (TV) is the largest market player in the Spanish speaking world. Apart from operating four broadcast networks in the Mexican territory, this firm produces content for 21 pay-tv channels accessible in North America, Asia, Europe and Latin America.

The media empire generates over 77,000 hours of programming for its channels, and also owns interests in terrestrial radio, magazine publishing, and Mexican bingo parlours. Additionally, the firm has stakes in Sky Television, its direct-to-home satellite joint venture with DirecTV (DTV), as well as in three cable firms — Cablevision Systems Corporation (CVC), Cablemas, and TVI -- that offer pay TV, voice, and data services in Mexico. So, let’s see why investment guru Jean-Marie Eveillard (Trades, Portfolio) increased his stake in the firm by an additional 16%. 

A large audience that keeps expanding

Televisa is a universally known and recognized media empire in Mexico, since it provides for the majority of content aired on pay-tv and broadcast networks. With a 70% total day audience share, the Spanish powerhouse dominates the Latin American market with its programming prowess and channel offerings. Its telenovelas, also known as Spanish soap operas, are particularly popular amongst viewers and have also become a favorite of the Spanish speaking audience in the U.S. Therefore, in an effort to expand its market territory and boost revenues, Televisa entered a long term agreement with the U.S. distribution partner Univision Communications, Inc. in 2010, which will run until 2025.

The $1.2 billion investment in Univision gave the Mexican media giant an initial 37.5% equity stake in its American rival, while reserving the right to acquire an additional 2.5% stake over the next 3 years. In return, the U.S. content distributer airs Televisa’s most popular content and pays royalties, which amounted to a record high $71.4 million in the third- quarter of 2013. Adding on to this, the firm also raised its stake in BMP, Univision’s controlling company, leaving it at a current 7.1%. So, the company’s interest in its U.S. audience is quite evident, but it’s also clear that intentions are to concentrate on the core content creation and distribution businesses for the next decade.

Another acquisition and a worrisome law

Televisa’s ambition to expand is unstoppable and has certainly helped boost revenues, which have grown by almost $1.5 billion ever since the Univision distribution deal in 2010. However, the most recent acquisition of a 50% equity stake in wireless service provider Iusacell could be detrimental to the firm’s growth. In fact, the billion dollar purchases executed back to back, not only substantially raised debt levels, but also contributed to reducing its otherwise significant shareholder returns via dividends, given the stagnant cash flow.

Furthermore, the new telecommunications industry reform bill, passed by the Mexican government, could be a bump in the road for Televisa, since its goal is to reduce the duopolistic market structure in Mexico. The company’s 60% broadcast TV market share may be questioned by the regulatory measures, and could force the firm to disinvest some of its broadcasting assets, in order to make room for other companies like Grupo Salinas (TV Azteca and Grupo Iusacell are the holding companies), owned by Carlos Slim. However, with Mexico’s pay-tv penetration reaching hardly 50% of the population, chances for Televisa’s future growth are highly optimistic. And the 27.10% operating margin and 12% EBITDA growth also lead me to feel bullish about this company’s future.       

Disclosure: Patricio Kehoe holds no position in any stocks mentioned.          

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Pato Kehoe
A fundamental analyst at Lone Tree Analytics

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