The coronavirus outbreak and oil price plunge have tanked the stock market globally. While the situation is serious, the low prices of many securities around the world have provided a great opportunity to buy good companies at very cheap prices. We like companies that have been consistently profitable and paying consistent dividends over the years. One such investment opportunity is Metropole Television SA (XPAR:MMT) (MTPVY, Financial), or Groupe M6.
Television segment is the core business
Groupe M6 is a French media company, operating four main business segments: Television, Radio, Audiovisual Rights and Production and Diversification. The television segment consists of free-to-air channels (M6, W9, 6TER) and pay channels (Paris Premiere, Téva, etc.), generating nearly 70% of the total revenue and 78.6% of the company’s operating profit. The TV segment makes money mainly through advertising or payments from platforms that distribute these channels as part of packages broadcast via cable, satellite or IPTV.
TV still has high dominance in France
Many people might think TV is losing its dominance with the fast growth of subscription video on demand. That is partly true, depending on the geographic region. In France, it is estimated that there are 17 million to 18 million people aged 15 or older who have used SVOD in 2019. However, the TV reach is 12 times higher than SVOD. TV has much higher coverage than SVOD among middle aged and elderly people.
Source: Groupe M6’s presentation.
Especially when it comes to prime time, there are around 23 million people watching TV each evening, 10 times higher than 2 million people who watch SVOD. With the existing dominant influence of TV for middle aged and elderly people in France, we are confident the cash flow stream from the TV segment will continue for at least the next five to seven years.
In addition, Groupe M6 has been taking initiatives to invest in the fast growth of over-the-top platforms. In June 2019, M6, TF1 and France Television Group created a joint venture to operate a distribution platform named SALTO for the channels of the Freeview TNT available on the OTT networks, offering innovative features and video-to-play service request by subscription.
A strong balance sheet, high return on equity and consistent dividend payment
Groupe M6 has been demonstrating growing business performance over time. Since 2014, revenue has grown by 16%, from 1.26 billion euros ($1.36 billion) to 1.47 billion euros, while the operating profit has jumped by more than 33% to 276 million euros over the same period. The company has also increased dividend payment to shareholders, from 0.85 euros to 1 euro per share. In 2019, it delivered growing advertising revenue, as well as an operating income with a high margin.
Source: Groupe M6’s presentation.
In 2019, the return on equity was impressive at 23.4%. The high ROE is really not a surprise for loyal Groupe M6’s shareholders. Since 2015, its ROE has been ranging from 19.7% to 25.4%.
The company employs a reasonable amount of debt in a quite strong balance sheet. As of December 2019, it had 125.4 million euros in long-term bond debt and 25.7 million euors in bank debt and credit. The 50 million euro bond was issued in July 2017 to finance the purchase of the radio division at a very low interest rate of 1.50%. It is due in 2024. The other 75 million eurose were issued in July 2019 to finance the acquisition of Jeunesse TV at around a 1% rate, which is due in the next six years. It is a quite smart thing to do, taking advantage of long-term debt at extremely low interest rates. The operating cash flow it generated in 2019, 277 million euros, was even more than the total financial debt in its balance sheet.
By 2021, Groupe M6 is anticipated to deliver 1.52 billion euros in revenue, while earnings per share could reach 1.48 euros. Thus, we are confident that Groupe M6 can continue paying at least 1 euro per share in dividends due to a high coverage ratio of 1.48.
Takeaway
Groupe M6 is cheap now with only a 3.87 times enterprise value-to-Ebitda valuation. Shareholders can also enjoy the consistent dividend yielding as high as 8.9%, very favorable compared to current low interest environment. We personally think the fair value for Groupe M6 should be 6 to 7 times enterprise value-to-Ebitda, or 50% to 80% upside from the current price.
Disclosure: The author does not own Groupe M6.
Read more here:
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