Update – 25th June 2010: IN&M have enacted a reverse 7 for 1 stock split. I have not updated my post to reflect this, so please take this into account when looking at the numbers.
With the fight for control over, the short-term debt to the bondholders restructured, and the company recapitalised; Independent News and Media has been stabilised, and is now focused on improving the business and reducing the debt burden. However, because of the strange way that the Board consolidate results from their 32% stake of APN News & Media into the wider company, general negativity in media stocks, and the downturn in Europe and Ireland; Independent News & Media trades at a substantial discount to intrinsic value.
Selected financial data for Independent News & Media (consolidated of APN News & Media).
- Shares outstanding: 3,499,100,026
- Market capitalisation: €384,901,003
- Debt: €1,003 million
- Equity: €545 million
Graphical representation of revenue and profit breakdown for 2009 – Consolidated of APN News & Media
Selected financial data for Independent News & Media (unconsolidated of APN News & Media).
- Market valuation: €44,197,196
- Revenue: €689 million
- Debt: €532.4 million
- Operating profit (1): €75 million
1. Before depreciation, interest and amortisation.
Independent News & Media recourse debt after restructuring
Breakdown of Independent News & Media’s Irish operation
- Revenue: €357.5 million
- Operating profit before exceptional items: €44.3 million
- Operating profit after exceptional items: €33.1 million
Breakdown of Independent News & Media’s British (including N. Ireland) operation
- Revenue: €122.7 million
- Operating profit before exceptional items: -€6.9 million
- Operating profit after exceptional items: -€86.2
Breakdown of Independent News & Media’s South African operation
- Revenue: €209.5 million
- Operating profit before exceptional items: €47.8 million
- Operating profit after exceptional items: €44.9 million
Selected financial data for APN News & Media.
Shareholding in APN News & Media (ASX:APN): 191,689,820 shares (32.3%)
Value of APN News & Media shareholding: €304,113,520
- Market cap: €947,700 million (AUS$1.35 million)
- Current price: €1.59 (AUS$2.26)
- Earnings per share: €0.119 (AUS$0.17)
- Dividend: €0.0281 (AUS$0.04) – second dividend expected
- Trailing P/E: 14
Selected financial data for Jagran Prakashan.
Shareholding in Jagran Prakashan (BOM:532705): 17,166,690 shares (5.7%)
Value of Jagran Prakashan shareholding: €36,590,287
- Market cap: €641,909 million (Rs36.41 billion)
- Current price: €2.13 (Rs120.90)
- Earnings per share: €0.103 (Rs5.84)
- Dividend: €0.062 (Rs3.5)
- Trailing P/E: 21
Historical financial data
Recent Insider Buying
21/05/2010: Ms. Lucey Gaffney – Purchase of 1,000,000 ordinary shares (0.03% of outstanding shares) at €0.12
21/05/2010: Mr. Leslie Buckley – Purchase of 1,000,000 ordinary shares (0.03% of outstanding shares) at €0.12
21/05/2010: Mr. Paul Connolly – Purchase of 1,000,000 ordinary shares (0.03% of outstanding shares) at €0.12
16/04/2010: Mr. B. Braun – Purchase of 450,000 ordinary shares (0.01% of outstanding shares) at €0.117
16/04/2010: Mr. Denis O’Brien – Purchase of 168,563,732 ordinary shares (4.82 % of outstanding shares) at €0.10-€0.14
With the highly profitable operations of Digicel backing him, Denis O’ Brien has been flexing his financial muscle to strengthen his hold on the the company. It’s also interesting to see that his three appointees to the board have initiated sizeable positions.
Major Shareholders
Denis O’ Brien: 18.61%
Sir. Anthony O’ Reilly: 15%
Henderson Global Investors: 4.22%
Pioneer Asset Management: 3.32%
FBD: 2.89%
Invesco: 2.67%
Catalysts for improved share price
- Denis O’ Brien has already spent upwards of €700 million on ~20% of the company that’s now worth ~€80 million. He has taken substantial losses on his investment, but his pockets are very deep, especially after he recently pulled several hundred million Euro out of his Digicel company. Also, given that he is a recent buyer of shares, and the fact that he offered to inject €100 million into the company during the bond refinancing, it is quite likely that he will continue to increase his stake further.
- I attended the IN&M annual general meeting, where CEO Gavin O’ Reilly stated that a resumption of dividends was a high priority. When debt levels are reduced, IN&M will be more than comfortable paying at least a 2-3 cent annual dividend. At the current share prices, this represents a 20-30% yield. If operating performance improved, it’s more than possible that this could double. Dividend is expected to be reinstated in either 2011 or 2012.
- Improved guidance from management has been ignored. Gavin O’ Reilly has stated that he expects operating profit of between €220 – €240 million for the year. With the market cap standing at €384 million, this means that IN&M are trading at EBITDA of less than 2.
- Management have also reported that the bondholders who took a sizeable position in the company during the recent restructuring have sold their stakes (20% of the company). This sizeable amount of indiscriminate selling is likely to have depressed the share price in recent months.
- Under shareholder pressure, the company finally disposed of the perennially loss-making Independent and Independent on Sunday. This disposal should reverse the losses of the British operation into a profit (the Belfast Telegraph newspaper will account for most of the British operation). The Sunday Tribune is another loss-making newspaper that is expected to be sold, or closed down. Some media report estimate that the Tribune is losing up to €100,000 a week, therefore a shuttering of this operation would be significant to profitability.
- As we’ve already shown, the stub value of IN&M (excl. Jagran Prakashan and APN News & Media) is valued at a tiny €44 million. If we value the stub value at a very reasonable 8 times EBITDA, then we get a market cap for the company of just under €1 billion, or roughly €0.285, two and a half times the current share price.
I believe the Independent News & Media offers deep value with a high margin of safety.