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TV - Grupo Televisa


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Been eyeing TV for a while after seeing Cascade have a fairly large investment.

 

Trades for $31 with 575 million shares for a market cap of $17.8 billion plus $3.2 billion of net debt. 

 

They are big cable and content providers in LATAM with an increasing 12% royalty stream and 38% stake in Univision.  It appears to be trading as if there will be no growth at all.

 

Here are the parts:

I estimate around a $300 million royalty from Univision which @ 20x is worth around $6B. 

The 38% stake in Univision is fairly levered so I'm getting an equity value @ 10x EV/EBITDA close to $2B.  This was a private equity LBO from 2007.

There's about $500 million of EBITDA from the cable business, which @ 10x is worth $5B.

The partial ownership in Sky does around $350 million of EBITDA, so @ 7x in line with DTV is worth $2.5B.

They also have a ton of broadcast TV content and pay TV that does $750 million of EBITDA (not really growing) which @ 8x is worth around $6B.

 

That all equals the EV so this is trading right at NAV.  I would argue that TV has a very good secular growth story ahead of it and there is room to lever up the company. 

 

I am fairly close to investing unless someone can give me good reasons why TV sucks.

 

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I looked at this briefly. What scared me a lot on this was some of the regulatory issues. Government came down hard on TV and Carlos Slim and essentially is encouraging increasing competition in TV's core broadcasting business. Advertising revenue has been weak and I think will only get weaker. I love the cable business and they're getting really nice growth there. 20x on the royalty stream seems a bit aggressive if there is topline risk at Univision, but overall I think this could work. Important to note too that Mike Fries of LBTY recently joined the board. My sense is capital allocation here could improve some.

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This is the only TV content I own. Not a great "value" but multiple ways to win:

 

1. Univision transaction

2. B/S leveraging

3. Content portability (a lot of Spanish speaking countries are getting pay TV)

4. Wireless play

5. More valuable products as middle class grows

6. Increased ad spend (not likely tho?)

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  • 3 years later...

This stock has fallen quite a bit since the last post in 2015.

 

The value of Media companies has obviously changed quite a bit in that time, at least in investors' minds, so I wonder if this move is justified.

 

Any thoughts from the board?

 

I've been looking at this, and you can make the argument that only one or two of the pieces of this media conglomerate can account for the entire EV.

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One big unknown with this (and any foreign investment where currencies are volatile) is could the Mexican peso depreciate further? It's been stable since early 2017, but my past experience with LatAm investments is that it sometimes feels like riding a roller coaster, particularly when USD-denominated debt enters the mix.

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I would stay away from Televisa!

According to my local sources, several members high in the organization are very corrupted.

Despite having published a code of ethics and hired a compliance director in order to look good.

 

An ounce of prevention is worth more than a pound of cure.

Benjamin Franklin"

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I would stay away from Televisa!

According to my local sources, several members high in the organization are very corrupted.

Despite having published a code of ethics and hired a compliance director in order to look good.

 

 

Who are your sources? What kind of corruption are we talking about?

 

A significant portion of people in America believe people at the highest levels of government and business are corrupt. I would bet the percent of people who believe that in Mexico is higher.

 

It's hard to handicap corruption. How many times in history have entire businesses gone down to the "corruption" of one or many of their executives? Are they playing fast and loose with accounting? Then that's an issue. But until you frame up what you're referring to, I'll assume that Televisa is like most businesses and to paraphrase Warren Buffett, "there is something unseemly happening somewhere, every day in every business."

 

 

https://www.transparency.org/news/feature/corruption_in_the_usa_the_difference_a_year_makes

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I would stay away from Televisa!

According to my local sources, several members high in the organization are very corrupted.

Despite having published a code of ethics and hired a compliance director in order to look good.

 

 

Who are your sources? What kind of corruption are we talking about?

 

A significant portion of people in America believe people at the highest levels of government and business are corrupt. I would bet the percent of people who believe that in Mexico is higher.

 

It's hard to handicap corruption. How many times in history have entire businesses gone down to the "corruption" of one or many of their executives? Are they playing fast and loose with accounting? Then that's an issue. But until you frame up what you're referring to, I'll assume that Televisa is like most businesses and to paraphrase Warren Buffett, "there is something unseemly happening somewhere, every day in every business."

 

 

https://www.transparency.org/news/feature/corruption_in_the_usa_the_difference_a_year_makes

 

What are the chances that VersaillesinNY is lying or misunderstood what his sources meant but felt confident enough to share it on the board risking embarassment? My guess based on the comment is the he/she genuinely was trying to help without putting sources in at least an awkward position by revealing them.  Honestly, if I would be long this, I would be asking if Versailles could elaborate and try to listen without giving in to the urge of rationalizing just because perhaps (and this is my guess) you are long but lack on the ground sources  Just my 2 cents.  Feel free to ignore. 

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VersaillesinNY, please ignore my prior comment and elaborate on your comments.

 

Cameronfen, please view my comments as simply trying to think about what is the base rate probability that an upper middle class person (similar to most of us on this board) in Mexico would think a company / person of immense wealth is corrupt. I'm also taking into consideration the base rate probability that VersaillesinNY knows someone "on the inside" with deep knowledge of how corrupt this company is.

 

VersaillesinNY, I am very interested in your perspective on this topic. Please do share.

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VersaillesinNY, please ignore my prior comment and elaborate on your comments.

 

Cameronfen, please view my comments as simply trying to think about what is the base rate probability that an upper middle class person (similar to most of us on this board) in Mexico would think a company / person of immense wealth is corrupt. I'm also taking into consideration the base rate probability that VersaillesinNY knows someone "on the inside" with deep knowledge of how corrupt this company is.

 

VersaillesinNY, I am very interested in your perspective on this topic. Please do share.

 

Cool understood.

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I am pretty sure that the leadership of TV is somewhat corrupt. These guys are part of the Elite around Pemex, Carlos Slim and the like that have the politicians in their pocket. I kind of like the New Mexican president and yes he has a socialist background, but seems pragmatic sonnst, but runs a coalitions with the right too and seems to try to dismantle the crusty elite that had been sucking out blood too long. Too early to tell, but I am somewhat optimistic.

 

I do know that TV missed earnings because the government reduced advertising. I am not even sure why the government should spent that much on advertising on TV and I think it’s a the right move to just get rid of it. I also would appreciate if the government would step up pressure on TV to break up, as I think this might unlock a lot of value.

 

Anything that sheds light into TV Management is appreciated. I keep warnings in mind,and control risk with position size. Do far it’s a small bet for me, but I like the odds.

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Somebody asked for an opinion on Televisa and I gave a warning. Feel free to ignore it or invest accordingly.

There are so many great and well-managed companies in Mexico, IMO Televisa is not one of them.

 

After conducting interviews within the digital media in Mexico DF, my impression is that there are still bad apples and bad practices within Televisa’s leadership.

 

In addition, it’s publicly documented that Televisa was involved in a bribery scheme to obtain broadcasting rights for FIFA World Cup soccer matches.

 

The business ethics at Televisa doesn’t seem right to me.

But, some investors can find it's stock price attractive and still make money trading it.

 

Disclosure: I have no position in TV, and no plans to initiate any positions within the next 72 hrs. I believe to have reliable sources.

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Somebody asked for an opinion on Televisa and I gave a warning. Feel free to ignore it or invest accordingly.

There are so many great and well-managed companies in Mexico, IMO Televisa is not one of them.

 

After conducting interviews within the digital media in Mexico DF, my impression is that there are still bad apples and bad practices within Televisa’s leadership.

 

In addition, it’s publicly documented that Televisa was involved in a bribery scheme to obtain broadcasting rights for FIFA World Cup soccer matches.

 

The business ethics at Televisa doesn’t seem right to me.

But, some investors can find it's stock price attractive and still make money trading it.

 

Disclosure: I have no position in TV, and no plans to initiate any positions within the next 72 hrs. I believe to have reliable sources.

 

Your input is much appreciated. In any case, I like the cable side better and will invest Megacable going forward.

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I am pretty sure that the leadership of TV is somewhat corrupt. These guys are part of the Elite around Pemex, Carlos Slim and the like that have the politicians in their pocket. I kind of like the New Mexican president and yes he has a socialist background, but seems pragmatic sonnst, but runs a coalitions with the right too and seems to try to dismantle the crusty elite that had been sucking out blood too long. Too early to tell, but I am somewhat optimistic.

 

I do know that TV missed earnings because the government reduced advertising. I am not even sure why the government should spent that much on advertising on TV and I think it’s a the right move to just get rid of it. I also would appreciate if the government would step up pressure on TV to break up, as I think this might unlock a lot of value.

 

Anything that sheds light into TV Management is appreciated. I keep warnings in mind,and control risk with position size. Do far it’s a small bet for me, but I like the odds.

 

Slim is not related to Televisa, he's actually a direct competitor!

 

I live in Mexico and I can tell that the president in charge doesn't like business tycoons (no matter the integrity or acumen of the individual) nor big companies. He is against big money and specially against big money that benefited from special treatment from previous governments. Televisa is certainly one of those.

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The royalties expire at some point mid-next decade, so your capitalization at 7-8% seems appropriate given this cash flow will go away. I would hesitate to capitalize it at a higher rate, unless I'm somehow mistaken.

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  • 3 weeks later...

There's a fairly good number of value investor types now invested in TV.  Dodge & Cox, Capital Research, Harris, and FPR.  Given that Azcárraga owns 40% of the A shares, they must be fairly comfortable with the lack of say in company mgmt.

 

What's the bull case for Grupo Televisa?

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  • 2 months later...
  • 9 months later...

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