It was actually quite ironic when I was recently reading a companies 2012 annual report that came up in a Canadian value oriented screen I went through, (using only TSX issues) eliminating prospects that did not meet the cut. From an original search return of 68 I was able to narrow it down to two companies I found intriguing and worth further research. One of the following companies was Glacier Media (TSE:GVC) an information technology company focused on print & digital media. Now the ironic part was that in the 2012 annual report the president quotes Berkshire Hathaway (“Berkshire will probably purchase more papers in the next few years. We will favour towns and cities with a strong sense of community, comparable to the 26 in which we will soon operate. If a citizenry cares little about its community, it will eventually care little about its newspaper. In a very general way, strong interest in community affairs varies inversely with population size and directly with the number of years a community’s population has been in residence. Therefore, we will focus on small and mid-sized papers in long-established communities.”) and also indicates “Glaciers view aligns with that of Warren Buffett, whose Berkshire Hathaway now counts nearly 270 community media properties in its portfolio.”
“Glacier has two segments: the newspaper and trade information markets and the business and professional information markets. The operations in the newspaper and trade information group include the Western Producer Publications and Farm Business Communications agricultural information group, Business In Vancouver Media Group, the JuneWarren-Nickle’s Energy Group, the Business Information Group, and the Glacier Newspaper Group. Its operations in the business and professional information group include Specialty Technical Publishers, CD-Pharma, Eco Log and a joint venture interest in Fundata. In November 2011, the Company acquired a 50% interest in InfoMine Inc. In November 2011, the Company acquired Canada’s Outdoor Shows Limited. In December 2011, it acquired Postmedia Network Inc.’s community newspapers in British Columbia.” – Thompson Reuters
The company has a great interactive timeline of acquisitions from 1999 in chronological order HERE.
Some current key valuation metrics I would like to highlight are:
- P/B = 0.35 or 397M in equity (48.4M is derived from ownership in non-controlling interest)
- P/S = 0.42
- Price to Cashflow = 3.17
- Current Ratio: 1.18
- Quick Ratio: 1.065
- P/E = 13x or 7.69% earnings yield
- Current Market Cap: 140M or 1.56 per share
- 2012 Gross Margin: 33.03%
- 2.77x Price to EBITDA
- 5.12% Dividend Yield or 50% pay-out ratio on 2012 earnings (recently increased 33% from 0.03 semi-annually to 0.02 quarterly)
Madison Venture Corporation owns 33% of Glacier Media, with CEO & president Jonathon J.L Kennedy as a principal. It is always great to find management with “skin in the game” and values aligned with that of shareholders.
I have attached an Excel file for important financial statement components on a 10-year interval under the following link. Glacier Media
Using earnings intrinsic value where G is equal to 11.3%
V = EPS x (8.5+ (2G)
V= 0.12 x 31.1
IV = $3.72
Discounted Cashflow Model:
Intrinsic Value = (Initial Cashflow x Growth Rate + Initial Cashflow) / (Discount Rate – Growth Rate)
(43,969,000 x 0.043) + 43,969,000 / (15-4)
IV = $4.80
IV = (4.80+3.72)/2
IV = 4.26
“The Company has recognized non-capital tax loss and other deductions of approximately $ nil (2011 – $23.2 million) that can be carried forward and may be used to reduce future year’s net income for tax purposes from the Canadian tax jurisdictions.”
The net interest expense in 2012 was 6.093M (12% of cash-flow or 8.3x) – Liquidity Risk is almost non-existent. On a side note a 100 basis point increase would have approximately 1.3M impact on pre-tax net income.
I would assume two major reasons for the depressed share value over the recent years would be first the subsequent event brought forth by CRA (Canadian Revenue Agency) in regards to non-capital losses of an affiliate (line 31 of annual report) as well as industry headwinds (declining print/ad revenue) and the entrance/expansion of multiple digital media companies in recent years. Cash-flow, retained earnings and sales have all been growing since the recession, led by M&A activity and organic growth. The industry as a whole is littered with value opportunities as newspaper distribution is having extinction priced in, an outcome small communities and larger media players will not allow, even if that means expanding and focusing on digital distribution in the future years.
Goodwill of small community newspapers surpasses that of large urban areas as loyalty, trust, heritage and character have been built up over time, the longer the community has existed, the stronger the goodwill of the community newspaper. If you have ever lived in a small town or read a small community newspaper you will understand the concept.
As management actively pays down debt (23.6M in 2012), continues to pay a dividend, and eventually a large share buyback will be authorized if price continues to decline as cash-flow grows. In 2015 long-term debt of 103.31M will be coming due (or 77%) further freeing up cash-flow servicing interest and debt.
|YEAR||Diluted EPS||Retained Earnings (in Millions)||Long-Term Debt||Cashflow||Goodwill/Intangible Assets||Sales|
|10-Year Avg. YOY % Change||113.1051028||874.8389217||111.2736197||33.15249962||39.92554918||36.03360983|
|5-Year Avg. YOY % Change||-4.875653083||22.33963096||3.645902473||4.304766514||2.087288505||9.322611601|
|10-Year Total Growth %||1100||5716.528926||1673.423423||877.1111111||1025.682594||1104.892296|
|YOY % Change||Diluted EPS||Retained Earnings||Long-Term Debt||Cashflow||Goodwill/Intangible Assets||Sales|