Monday, August 12, 2019

Report: iHeartMedia Is Ready For Next Chapter

The radio-station giant exited from Chapter 11 on May 1 looking slimmer and fitter. Its debt was cut to $5.8 billion from $16 billion before bankruptcy, and it is well-positioned in the fast-growing and competitive digital streaming and podcasting businesses, according to Barron's.

iHeartM shares (ticker: IHRT), now trading around $13, look appealing as creditors who received shares in bankruptcy sell their holdings. The stock began trading on Nasdaq in mid-July at around $17. The stock trades for just seven times projected 2019 earnings of $1.73 a share, and its 20% free-cash flow yield (the estimated 2019 free-cash flow divided by the company’s $1.9 billion market value), is high.

“It’s the largest radio company in the country and has a strong digital presence,” says Hamed Khorsand, an analyst with BWS Financial in Woodland Hills, Calif. “Now that the company is in better financial condition, it will be able to better invest in the business and grow.” He has a $30 price target.

iHM operates 848 radio stations—roughly double the total of No. 2 Cumulus Media—which account for 63% of its revenue.

Commercial radio’s high advertising burden—estimated at 15 minutes per hour—is a risk, and could affect listener engagement over the long term.  iHM says outside data show its engagement is strong at 30 minutes per day, versus 25 minutes for Google and 18 minutes for Facebook .

The weak performance of iHM shares since they began trading reflects investors’ general distaste for radio—along with much of traditional media. Shares of rival Cumulus and Entercom Communications  are down 21% and 52%, respectively, over the past year.

While commercial radio has proven resilient in the face of challenges from streaming services like Spotify Technology ’s Spotify and Apple ’s Apple Music, iHM’s terrestrial radio business probably has limited growth potential. The outlook is better for the company’s digital streaming, podcasting, and live events, reports Barron's.

Many of iHM’s shares are held by a few large investors. Bond giant Pimco owns 30%, followed by Franklin Templeton Investments at 8%, and Liberty Media at 4.8%.

One potential catalyst for iHM shares comes from Liberty, which made an offer for iHM in 2018, before the company entered bankruptcy protection. That offer valued the equity at almost $3 billion, 50% above the current value.

Liberty controls Sirius XM Holdings, the $27 billion behemoth of the satellite-radio business. Sirius bought Pandora, the music-streaming company, earlier this year for $3.5 billion.

Liberty, however, seems content with a passive stake in iHM for now. CEO Greg Maffei said on Liberty’s conference call Thursday that “we’ll watch the business with interest.” He attributed the “rockiness” in iHM’s stock in part to selling by debt investors who aren’t natural holders of the stock.

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