CTC Media (CTCM, Financial) is a Russian broadcasting company that was incorporated in the United States that is headquartered in Moscow, Russia. The company operates three Russian television networks: CTC, Domashny and DTV. The company through its three networks covers approximately 100 million people in Russia. Over the last five years, the company's net income has grown at around 8% and sells for less than 3x its earnings. The Russian broadcasting market has lots of competitors for advisers. Audience and rating is the main driver of revenues for Russian broadcasting companies. The lower the audience and rating the less a broadcasting company will sell in ads.
The company's ratings and audience shares depend largely upon the company's programming appeal. CTC Media has a 17% market share in Russia and the bulk of its revenues come from advertisement. The company franchise channel is CTC which is the third most watch channel in Russia with the 10 to 45 year old viewers. The company's CTC channel last year had 300 advertisers who purchase advertisements and the firm's top 10 advertiser's represents 34% of the company's total ad revenues. The company has spent the last two years increasing its technical penetration from 90% in 2009 to 95% in 2013. CTC channels has a 95% penetration level with the Russian population.
For the first three months of 2015 ending in March, the company revenues decreased 58% to $79 million and net income as well decreased 73% to $8.4 million. Revenues from the company's CTC Network segment decreased 62% to $51.1 million, Domashny Network segment decreased 50% to $14 million, and Peretz channel segment decreased 62% to $7.2 million. CTC Media has no long-term debt and only has $3 million in short-term debt. The company has operating margins of 17% while the industry average is 9% and produces around $180 million in free cash flow or $1.12/share. The company has a long history of not losing any money in a given year. CTC Media is been producing positive cash flow for over 10 years now and hasn't issued a single new share in seven years.
The company on July 6, received a non-binding offer from UTH Russia to purchase up to 75% of the company. CTC board has appointed a special commitee to review the offer from UTH Russia. Th company board and its special commitee have both review the offer and will seek to negotiate final terms for the deal. CTC Media is open to the offer to purchase 75% of its company in an all cash deal of $200 million. This will unlock value for the company and increase the company cash and marketable holding to over $300 million which will exceed its market cap.
CTC Media is selling for far less than the industry average with the company selling for 3x earnings, 2.3x EV/EBIT, P/FCF 3.4x and 0.8x book value. The company has the lowest debt-to-equity levels than its competitors. CTC Media has one of the clean balance sheets in the broadcasting sector with $141 million in cash and marketable securities on its balance sheet or $0.91 per share. Currently the company is selling for less than 2.6x operating earnings and less than 3x pretax earnings. The company has an operating earnings yield of 36% and a forward rate of 33%. At five times it's earning and operating earnings the company would sell for $3.45 and $4.85 per share. Currently the company is experiencing short term problems caused mainly by the sanctions on Russia. What has been happening in the Ukraine has created opportunities to invest in Russian equities like CTC Media. The company has $743 million book value which is mainly made of assets with little to no debt and has a current market value of $296 million. There is a lot of value in CTC Media, especially selling at $1.89/share. CTC Media is profitable and half the company's market cap is made up of cash and marketable securities. Low valuations, profitability and lots of liquid assets equals a home run investment. This doesn't mean there isn't any risk in investing in CTC Media; the company's earnings come from Russia and the company is suffering from the sanctions imposed on the country. These sanctions are hurting the Russian economy which leads to lower ad spending by advertisers which will hurt CTC's bottom line. I believe this is already priced into the company's current market cap, and the company has more than enough liquid assets to get through that if it happens. Make sure you understand the risk involved with investing in CTC Media.
