Description

Fisher Communications is a Seattle-based owner of commercial real estate and local television and radio stations. (What better assets to own in this environment?) Unlike nearly all of its peers, it is very well-capitalized, and I believe the current stock price does not reflect the value of its assets.

Fisher’s assets include:

• The ABC affiliates in Seattle and Portland, which generate a majority of Fisher’s tv revenue. They also own a number of smaller market stations in the Northwest (DMA 100+), as well a CBS/FOX duopoly in Bakersfield, CA (DMA 125). The television group generated $86 million revenue in the first nine months of 2008, and should be able to generate well over $100 million in revenue on an annual basis.
• 9 radio stations, including three major stations in Seattle. The radio stations generated $29 million in revenue in the first nine months of 2008, and I estimate they will generate a bit over $30 million in revenue annually once their albatross Seattle Mariners contract expires at the end of this year.
• Fisher Plaza, a 300,000 sf office building in downtown Seattle which houses data centers, offices, and retail space. It was built around 2000, and has a book value of about $115 million.  I estimate it generates income of about $10 million per year, if we account for the space Fisher occupies for its own operations.

The quick history on the company is that it had been poorly managed until very recently, when management got a lot more shareholder friendly (even paying out a special dividend this year). The real estate was on the market earlier this year, but was taken off due to the weak economic environment.  In addition, earlier this year a private equity firm apparently indicated that it was willing to buy Fisher for about $40 - $42 per share, but was rebuffed.  The debt has a coupon of 8.625% and matures in 2014, and excess cash on the balance sheet is from the recent sale of their 2% stake in Safeco Insurance, which was acquired this year by Liberty Mutual.

The simple math works out like this:

Current Price						$20.85
Shares Outstanding (millions)						8.7
Current Market Cap						$182.2
Plus: Debt						$150.0
Less: Cash						($78.4)
Less: Value of Fisher Plaza (book)						($115.0)
Equals: Implied Value of Broadcasting Assets						$138.9
Estimated Normalized EBITDA from broadcasting assets (30% margin)						$40.0
Multiple of Normalized EBITDA						3.5x
Share price at 5x broadcasting EBITDA:						$27.84
Share price at 6x broadcasting EBITDA:						$32.42
Share price at 7x broadcasting EBITDA:						$36.99

It should be noted that management is working to improve margins at the broadcasting assets – they have been much less profitable than they should be, because of the aforementioned poor management.  Because of the uncertainty around the future profitability of local television, I use very conservative estimates for revenues and margins. Historically, major market stations have been able to generate low-40s margins, and smaller market stations would generate margins in the 30s (though margins would be higher for a duopoly). Radio stations should be able to generate 30% margins as well, in a better environment.  I estimate the broadcasting assets will generate $140 million in annual revenue, on a normalized basis, so buying Fisher at this price gets you a group of broadcasting assets at 1x revenue.

Catalyst

Eventual sale of Fisher Plaza and/or the entire business, when conditions improve.