David Atterbury of Whetstone Capital, InvestPitch presentation produced by sumzero and Institutional Investor on the long case for Gray Television, Inc. (NYSE:GTN).
Gray Television business overview:
- Local TV broadcaster with CBS/NBC weighting
- In 31 mid size markets
- #1 in local news in 23 markets
- Strategic focus on college towns and state capitals – markets with above average demographics and revenue growth – 17 markets are college towns – 8 markets are state capitals
- Controlled by the Robinson Family
Why We Like Gray Today:
- Substantial leverage to 2014 political advertising
- Well positioned to grow through acquisitions using company’s new duopoly model
- Above industry local ad growth
- New retransmission contracts
- Leverage to all of the above via current balance sheet
Significant Industry Tailwinds
- Retransmission: Broadcasters continue to extract significant recurring revenue from cable/satellite providers (MVPDs) on a monthly per subscriber basis allowing MVPDs to retransmit network content
- Political Advertising: Citizens United v. FEC allows corporations, associations and unions to spend freely on political advertising – significant implication for broadcasters as 45% of political spending goes through local TV
- Auto Advertising: Pent-up demand/aging fleet driving robust ad spend
- Debt Refinancing: Companies have accessed debt markets to refinance high cost debt and fund industry consolidation
- Industry Consolidation Wave
– Significant private & private equity backed opportunities remain available for acquisition
- 50% of operators own less than 15 stations and are non-public
- More privately owned properties will likely sell in 2014
- Public market consolidation likely to follow
– Broadcasters with scale can better negotiate with networks, MVPDs and national advertisers
Industry Valuations
- 2014/2015 EV/EBITDA Averages
– Gray Television, Inc. (NYSE:GTN), Nexstar Broadcasting Group, Inc. (NASDAQ:NXST), LIN Media LLC (NYSE:TVL) trade at ~8.5x
- Pre recession multiples approached 10x EV/EBITDA
– But these are better businesses now:
– Retransmission, political and digital revenue streams have greatly expanded
– Advertising revenue appears to be benefitting from the decline of the local newspaper
– Balance sheets have significantly improved
H/T Curry Goat
