In the interests of disclosure, I hold.
Current Price $6.56
Code WON
Yield 5.90%
Market Capitalization $1006.3
TCI Price Target $17.20 to $23.22
Investment Sector Entertainment
P/E Ratio 8.88
Recommendation Buy
Industry Statistics
Market Capitalization: 83B
Price / Earnings: 35.6
Price / Book: 5.6
Net Profit Margin 10.2%
Price To Free Cash Flow -366.8
Return on Equity: 10.2%
Total Debt / Equity: 1.4
Dividend Yield: 2.6%
We can surmise from the Industry statistics that the individual business is currently unpopular and underperforming the industry relatively in terms of price multiples being awarded to the shares.
Business
Westwood One, Inc. supplies radio and television stations with information services and programming. The Company provides traffic reporting services, as well as produces and distributes national news, sports, talk, music and special event programs, in addition to local news, sports, weather, video news and other information programming. Westwood One obtains the commercial airtime it sells to advertisers from radio and television affiliates in exchange for the programming it provides to them. That commercial airtime is sold to local/regional advertisers and to national advertisers. The Company provides local traffic and information broadcast reports in over 95 Metro Survey Area (MSA) markets in the United States. Westwood One is managed by CBS Radio Inc., a wholly owned subsidiary of CBS Corporation.
Capitalization
The business is leveraged, carrying 42% of the capitalization as long term debt.
This debt is amply covered within EBIT earnings at 8.5 times interest charges.
This is important as the returns that will accrue to the investor owe no small part to the use of the senior capital, thus the interest payments must be secure.
INCOME STATEMENT
Revenue 544.52M
Revenue Per Share 6.104
Qtrly Revenue Growth -9.90%
Gross Profit 185.55M
EBITDA 140.73M
Net Income to Common 67.31M
Herein lays the problem.
Revenues have been under pressure and are showing lack of growth. They in fact have been showing only 1.57% compounded growth over the last five years. In Wall St, this is not a good way to be awarded high multiples on your stock.
Profitability
Profit Margin 12.36%
Operating Margin 23.75%
The margins are however higher than the Industry average and they are consistent and stable, which allows the safe use of a leveraged Capital structure to generate returns for the Equity.
Net Profits in direct comparison to Revenue growth have been growing at the compounded rate of 14.4% over the last five years. This is a direct consequence of the leveraged Capital structure.
BALANCE SHEET
Total Cash 6.41M
Total Cash Per Share 0.074
Total Debt 425.32M
Total Debt/Equity 0.617
Current Ratio 1.599
Book Value Per Share 7.972
The Balance Sheet is average.
It would be nicer to see a stronger cash position. The cash position is below strict standards for investment, but only marginally.
There are no inventories to carry, thus the benefit of doubt in this instance would seem to be acceptable, as in an emergency, a portion of the Receivables could be monetized, thus providing a significant margin of safety to the cash position.
CASH FLOW STATEMENT
Operating Cash Flow 78.88M
Levered Free Cash Flow 155.37M
Here is where the story lies.
Capital spending requirements are minimal. The cash is free for acquisitions, or, to be returned as a dividend, the free cash flow being substantial. This dividend can, due to the use of the capital structure grow at the same rate as Net Profits and provide an amortization of capital to the investor.
In the past, an acquisition was purchased, and has been a successful investment, returning 11.5% on investment to the business. With seemingly a lack of investment opportunity, a cash dividend has been instigated and in the future a share repurchase program may be initiated. This will increase the earnings per share, and increase the multiplier assigned.
Of course there is always the possibility that Revenues start to grow a little faster than the current growth rate. This would be a very positive outcome, but one that is speculative in nature and cannot be relied upon.
SUMMARY
At the current price of $6.56 I feel that this offers a good opportunity to invest in a business that offers a currently safe, though speculative Capital structure through which the Equity capital benefits from the senior capital.
The low capital expenditure requirements benefit the common in three ways; it allows expansion via an acquisition which based on past returns would benefit the holders of the common, it offers the potential of a growing dividend, and lastly the possibility of a share repurchase program.
jog on
d998
Current Price $6.56
Code WON
Yield 5.90%
Market Capitalization $1006.3
TCI Price Target $17.20 to $23.22
Investment Sector Entertainment
P/E Ratio 8.88
Recommendation Buy
Industry Statistics
Market Capitalization: 83B
Price / Earnings: 35.6
Price / Book: 5.6
Net Profit Margin 10.2%
Price To Free Cash Flow -366.8
Return on Equity: 10.2%
Total Debt / Equity: 1.4
Dividend Yield: 2.6%
We can surmise from the Industry statistics that the individual business is currently unpopular and underperforming the industry relatively in terms of price multiples being awarded to the shares.
Business
Westwood One, Inc. supplies radio and television stations with information services and programming. The Company provides traffic reporting services, as well as produces and distributes national news, sports, talk, music and special event programs, in addition to local news, sports, weather, video news and other information programming. Westwood One obtains the commercial airtime it sells to advertisers from radio and television affiliates in exchange for the programming it provides to them. That commercial airtime is sold to local/regional advertisers and to national advertisers. The Company provides local traffic and information broadcast reports in over 95 Metro Survey Area (MSA) markets in the United States. Westwood One is managed by CBS Radio Inc., a wholly owned subsidiary of CBS Corporation.
Capitalization
The business is leveraged, carrying 42% of the capitalization as long term debt.
This debt is amply covered within EBIT earnings at 8.5 times interest charges.
This is important as the returns that will accrue to the investor owe no small part to the use of the senior capital, thus the interest payments must be secure.
INCOME STATEMENT
Revenue 544.52M
Revenue Per Share 6.104
Qtrly Revenue Growth -9.90%
Gross Profit 185.55M
EBITDA 140.73M
Net Income to Common 67.31M
Herein lays the problem.
Revenues have been under pressure and are showing lack of growth. They in fact have been showing only 1.57% compounded growth over the last five years. In Wall St, this is not a good way to be awarded high multiples on your stock.
Profitability
Profit Margin 12.36%
Operating Margin 23.75%
The margins are however higher than the Industry average and they are consistent and stable, which allows the safe use of a leveraged Capital structure to generate returns for the Equity.
Net Profits in direct comparison to Revenue growth have been growing at the compounded rate of 14.4% over the last five years. This is a direct consequence of the leveraged Capital structure.
BALANCE SHEET
Total Cash 6.41M
Total Cash Per Share 0.074
Total Debt 425.32M
Total Debt/Equity 0.617
Current Ratio 1.599
Book Value Per Share 7.972
The Balance Sheet is average.
It would be nicer to see a stronger cash position. The cash position is below strict standards for investment, but only marginally.
There are no inventories to carry, thus the benefit of doubt in this instance would seem to be acceptable, as in an emergency, a portion of the Receivables could be monetized, thus providing a significant margin of safety to the cash position.
CASH FLOW STATEMENT
Operating Cash Flow 78.88M
Levered Free Cash Flow 155.37M
Here is where the story lies.
Capital spending requirements are minimal. The cash is free for acquisitions, or, to be returned as a dividend, the free cash flow being substantial. This dividend can, due to the use of the capital structure grow at the same rate as Net Profits and provide an amortization of capital to the investor.
In the past, an acquisition was purchased, and has been a successful investment, returning 11.5% on investment to the business. With seemingly a lack of investment opportunity, a cash dividend has been instigated and in the future a share repurchase program may be initiated. This will increase the earnings per share, and increase the multiplier assigned.
Of course there is always the possibility that Revenues start to grow a little faster than the current growth rate. This would be a very positive outcome, but one that is speculative in nature and cannot be relied upon.
SUMMARY
At the current price of $6.56 I feel that this offers a good opportunity to invest in a business that offers a currently safe, though speculative Capital structure through which the Equity capital benefits from the senior capital.
The low capital expenditure requirements benefit the common in three ways; it allows expansion via an acquisition which based on past returns would benefit the holders of the common, it offers the potential of a growing dividend, and lastly the possibility of a share repurchase program.
jog on
d998