Nexstar Broadcasting, owner of KSNF in Joplin and KSFX in Springfield and de facto owner of KODE in Joplin and KOLR in Springfield, has added another station to its stable.
According to published reports, the company will close on its purchase of WTAJ Channel 10, the CBS affiliate in Altoona/Johnstown, Pennsylvania, sometime in the fourth quarter. The sales price was reported at $56 million.
ADVICE TO NEXSTAR: BE SELLER, NOT BUYER
ReplyDeleteTVNEWSDAY, JUL. 27, 2006, 9:04 AM ET
In the wake of the TV group's $56 million buy of WTAJ Johnstown-Altoona, Bear, Stearns downgrades stock, saying the company should sell some stations to pay down excessive debt.
By Staff
Victor Miller doesn’t like idea that Nexstar is buying stations instead of selling them.
This morning, the day after Nexstar announced the acquisition of WTAJ Johnstown-Altoona, Pa., (CBS, DMA 98), Miller and his team of financial analysts at Bear, Stearns downgraded Nexstar from outperform to underperform, saying the company is “sending the wrong signal” by not making good on promises to sell some stations and reduce debt.
With Nexstar leverage expected to hit 7.7-times at the end of this year and more than nine-times at the end of 2007, the Bear, Stearns report said the company's “equity base is razor thin.”
Any investor in Nexstar is taking “inordinate balance sheet risk,” the report said, given anticipated economic slowdown in 2007, the sluggish network upfront and broadcasting’s heavy dependency on two other industries, auto and retail.
The report cited several instances in the past three years in which Nexstar CEO Perry Sook has promised to sell stations to improve the balance sheet.
“The question has to be asked: Where are the buyers? Has there been no interest in the [Nexstar]-sized markets at attractive sales multiples? Why have there been no asset sales in nearly three years since the IPO despite nearly three years of effort to sell something.”
Bear, Stearns does not think that Nexstar overpaid for WTAJ, noting that the $56 million price tag represents a blended 2005-2006 EBITDA multiple of 8.9, if $600,000 in cost savings are factored in. “The transaction is below Nexstar’s current 9.1-times trading multiple,” it said.
NexStar Broadcasting Group (NXST-$4.40) - Underperform
ReplyDeleteNXST Sending the Wrong Signal - Downgrading to Underperform
· $56MM TV Acquisition. NXST announced its intention to purchase WTAJ-TV, the CBS affiliate serving the Johnstown/Altoona, PA market (DMA rank 97) for $56 million in cash from Television Station Group Holdings. The deal is expected to close in 4Q 2006.
· 8.9x 2005/2006 EBITDA. We believe that WTAJ's $56 million price-tag represents an 8.9x "blended" 2005/2006 EBITDA average, including $0.6 million in cost efficiencies. The transaction is below NXST's current 9.1x trading multiple.
· Leverage IS the Issue. Pro forma for the deal, we expect year-end leverage to be approximately 7.7x by year-end 2006 and to reach 9+x by year-end 2007. As we discussed in our May 26, 2006 piece, "Local TV: It's All About Leverage", we believe leverage continues to plague the pure-play TV business. And NXST is TV's most leveraged player.
· NXST Sending the Wrong Signal. Since the company's November 2003 IPO, NXST has promised asset sales to lower leverage. Nearly 3 years later, no asset sales have taken place. NXST's inability to sell assets and de-lever is a significant issue.
· Razor Thin Equity Base. With projected year-end 2006 and 2007 leverage of 7.7x and 9+x respectively, investors must take inordinate balance sheet risk in a a) volatile geopolitical environment, b) projected economic slowdown in 2007, c) sluggish broadcast/cable upfront, with d) 35% exposure of revenues to auto and retail. If TV is trading at a 10x blended 2006/2007 EBITDA multiple, then Nexstar's equity base is razor thin.
· Downgrade to Underperform. While NXST is the only TV stock to post share gains since January (better by 640 to 4500 basis points than comps), our Outperform rating was based on NXST's new retransmission fees and likely asset sales. We will wait until we see NXST de-lever and deal with some expensive pieces of its capital structure.