Description

Glacier Media is a Rubik’s Cube of value, which starts with a very low valuation of 0.7x sales, 5.5x EV/EBITDA, with $220M in revenues and $20 million in free cash flow ($90 million market cap/$155 million EV; this includes worst case scenario tax liability of $33M). Glacier Rubik’s Cube of value begins with 40% of non-newspaper revenue that should arguably carry a multiple that is 3-4x the current overall valuation. In addition, the community newspapers are sustainable with significant free cash flow margins, low CAPEX, and early stages of converting to digital (30% EBITDA margins). We think GVC is worth at least $1.35 to as much as $2.75 based on a sum-of-the parts valuation: a) newspapers are worth $.65-$1.25 per share, b) Energy/Mining business information segment is worth $.50-.75 a share c) Environmental, Property & Financial are worth $0.80-$1.30 per share, less d) debt and assuming a worst case potential tax liability totaling $0.66 per share. Included in Glacier's businesses are some hidden gems that could sport a significant valuation: a Zillow-like real estate site, www.rew.ca,  growing revenue at +60%, ERIS, a small but very high margin database for environmental risk information, the largest trade show in Canada for Agriculture, and many other valuable brands worthy of 10-15x EBITDA. The Daily Mail (DMGT.L) is a comp, valued at 1.5x EV/Sales and 10x EV/EBITDA. DMGT.L has similar assets, yet GVC trades at less than ½ this valuation or at 5.5x EV/EBITDA. We think GVC will rapidly grow intrinsic value through very attractive reinvestment bets vs. DMGT strategy to pay out excess cash flow in the form of a large dividend. Famed VC investors Silver Lake and Battery Ventures have bought two comparable businesses from DMGT.L: in March 2018 they bought EDR, an environmental risk information business for $205 million USD or 2.5x EV/Sales and in May 2018, they bought Zoopla Property Group (ZPG), a Zillow like real estate web site in UK for 3.4 billion USD or 9.0x EV/Sales. GVC owns identical businesses to the two acquisitions. www.rew.ca is a Canadian comp to UK based Zoopla and ERIS was the #2 player in North America to EDR. Since 2000, Glacier has purchased $450 million worth of assets vs. current EV $130 million. Of course, multiples and results have compressed in community newspapers, but the market gives no credit to recent progress: 1) substantial de-leveraging, 2) growing value of Business Intelligence businesses that are 40% of total revenue, 3) Free cash flow bottomed at $20 million with little variance over the last 3 years, and going forward we believe FCF will begin to grow. Near term catalysts included a 10 for 1 reverse stock split which is likely to be approved by shareholders on June 19 (goes from an .86 cent with .20 in free cash flow to $8.60 stock with $2.00 in free cash flow per share), combined with rapid growth and margin improvement in key business units and a rock bottom valuation of 4.5x market cap/free cash flow and 7.8x enterprise value/free cash flow (6.5x EV/FCF without tax liability). Glacier trades at a rock-bottom valuation due to the following past issues:

• Glacier Media is perceived as a left for dead Canadian Newspaper Company
• 5 consecutive years of revenue decline
• Affected by Newspapers & Energy (Oil, Gas, Mining) industry headwinds
• Took massive impairment losses of $125 million in 2015
• Suspended their dividend in 2016
• GVC Investors went from getting paid to paying to own shares, as the Dividend went from 6% to a rights offering backstopped by Chairman/largest shareholder
• The company had a large debt load that has been greatly reduced to a very manageable current 1.4x Debt/EBITDA
• Sold over $40 million of assets not essential to its core in the past 2 years
• Illiquid shares trading below $1
• Only trades in Canada
• Lost all analyst coverage
• Does not hold conference calls

The profitable newspaper business is stabilizing and generates cash which can be deployed into a large set of attractive reinvestment opportunities into digital media and business information services. We believe with growth, these business segments will be re-valued at a significantly higher multiple than 6-7x EV/free cash flow. GVC has FCF yield of 16% and borrows at 5%. The company is run by highly competent management with Jon Kennedy (Harvard MBA) as president and led by the Canadian real estate mogul and Chairman, Sam Grippo, who owns 25%+ of outstanding shares. Finally, Tim McElvaine is a strong investor advocate as he manages a successful value fund in Canada (Valuefund.ca) and has a board seat. Insiders collectively own 32% of shares outstanding. With a much cleaner balance sheet, strong cash flows, and growing digital subscription businesses with 20% margins, we think the stock will be rediscovered and is worthy of a significantly higher valuation:

Catalysts include:

• Reverse 10 for 1 stock split vote on June 19th
• 40% of revenue comes from a collection of sticky digital media businesses with ~$90 million in revenue with 20% operating margins and 2% of revenue as capital expenditures
• Environmental, Property, and Financial Information segment has $30 million in revenue with 26% operating margin and three consecutive years of double-digit revenue & EBITDA growth
• While REW is about 2-3% of revenue it could represent a large fraction of GVC market cap in a sale. REW is a Zillow-like site that is growing 60%+ annually in revenue with over 2 million monthly visitors (this is likely worth somewhere between $30-60 million, current market cap is $75 million) - by comparison Zillow has ~160 million monthly visitors and is valued at ~US$10 billion and Zoopla has ~60 million monthly visitors valued at £2.2 billion
• ERIS + STP is small generating only about $15 million but 20-30% EBITDA margins with strong organic growth, estimating 10%+ annual revenue growth. ERIS might be only 5% or revenue but could be worth $30-45 million or 33%-50% of the current market cap. ERIS is one of two companies in North America that has full coverage of North America for environmental risk information which is required for construction projects.
• The Commodity Info business (agriculture, energy and mining) runs at ~19% divisional EBITDA before corp. expenses.
• Glacier has managed their community newspapers business well with measured cost-cutting while revenues slowly decline - this business still throws off about $18 million of divisional EBITDA before corp. expenses.
• Raised $13 million to pay off debt from a rights-offering backstopped by the top 3 shareholders
• Repaid 70% of outstanding debt over last 5 years
• Net Debt is 1.4x EBITDA with capex 1-2% of revenue.
• CFO has bought stock in the open market late 2017
• Insiders own 32% of shares outstanding
• Energy cyclical downturn reverse

Note: we are using for free cash flow: operating cash flow + cash Flow from Investing adding back cash distributions received from JV’s.

GVC operates in 3 segments 1) Newspapers, 2) Commodities/Energy, 3) Environmental/Property/Financial

NEWSPAPERS:

Although revenues are declining, the newspaper segment generates majority of the cash flows and allows management to pursue growth bets that are paying off. The common core bet is that undeniably, traditional paper based newspapers given their challenges are worthy of a low multiple. Two advantages for Glacier papers: A) small town focused where they are the dominant source of local current events and b) Glacier is making a big push to move the newspaper business to become more digital (far less revenue but 30% vs. 10% EBITDA margins are targeted).   

For the past several years, Canadian newspapers have been trading titles and closing them to create regional monopolies with a strong local presence. “Glacier now controls the community newspaper market in Vancouver’s booming eastern suburbs.[1]” Smaller community oriented markets lend themselves to creating a sticky service because information cannot be accessed anywhere else. We believe Glacier Newspaper’s revenue decline will slow and stabilize with greater profitability in their regional monopolies, transition to digital economics, and 50% revenue growth last year in their digital media operations.

Newspapers are trading between 0.5x-1.0x EV/ Sales and between 4.0x-8.0x EV/EBITDA. GVC’s revenue decline and EBITDA margin are better or similar to its comps. We believe GVC Newspaper segment deserves 0.5-1.0x EV/Sales, which would equate to a ~$69-138M EV or $0.63-$1.25 per share. We believe GVC newspaper business should be valued on the higher end of the comps below as a) the cleanest balance sheet in the industry b) quickest pay down to debt free status given 40% of revenue comes from non-newspaper business information services and c) dominant supplier of small town news in western Canada and d) very attractive reinvestment opportunities in both newspapers and business information services.

COMMODITIES/ENERGY SEGENT (Agriculture, Energy & Mining)

This segment was impacted by the energy & commodity cyclical downturn, but the cyclical downturn is reversing and restructuring bets are paying off with strong revenue growth numbers and stability in 1Q18. Energy and agriculture markets are stabilized. Mining is in full recovery. Revenues for the mining group overall grew by 30%. Energy subscription products had lower revenue decline. During the downturn, management shed non-growth assets to invest in key subscriptions and database products as well as trade shows:

• Agdealer -  an online marketplace for new and used farm equipment.
• Weather Innovation Network (“WIN”) – provider of information and decision tools for agricultural production. WIN expanded operations in the EU and commenced the deployment of a U.K.-based weather network for the Food and Environment Research Agency, a U.K. crown corporation.
• Glacier FarmMedia (GFM) – GFM acquired Canada’s Outdoor Farm Show (“COFS”) and invested more to double revenues and triple profits. GFM also launched Ag In Motion (“AIM”) 3 years ago to copy COFS success. AIM and COFs hit record attendance and revenues last year and was financially successful.
• CanOils, Evaluate Energy, Infomine – richer energy and mining data providing financial & operating insights and tools.
• Northern Miner Group – Successfully launched two shows and will repeat and expand in 2018: Canadian Mining Symposium in London, England and the Progressive Mine Forum in Toronto.

Mining Group: We have been the trusted source for news and information for over 135 years through publications such as the Northern Miner and the Canadian Mining Journal. Complementing this consistent presence is an eye to the future: 1) Data science via our Mining Intelligence products and services; 2) Sourcing, developing and networking great talent via our Recruitment and Education programs; and 3) Reporting current news and trends at the most viewed, #1 global mining news site, mining.com. Mining group properties have over 3 million monthly visitors.

Agriculture/Farm Media: Our strong Ag publications, and online properties engage millions of readers every week and provide advertisers and marketers countless opportunities to reach target audiences with unique and integrated programs. Glacier Farm Media is focused on the future, with a strategy positioned for success in a new media world. Farm Media also owns the largest trade show for Canadian Famers with 40,000+ attendees. Farm Media has about 20 publications/websites: http://farmmedia.com/

The commodity/energy segment had $56M in revenues in 2017 with ~15% EBITDA margins. Given improving market conditions and the shift to digital subscription offerings and successful trade shows, we believe this business is worth 1-1.5x EV/Sales, or $56-84M or $0.51-$0.76 per share.

ENVIRONMENTAL, PROPERTY, FINANCIAL

This segment has 3 years of consecutive Revenue and EBITDA growth with ~20% EBITDA margins and contains sticky high-quality businesses.

In Environmental, GVC’s Environmental Risk Information Services (“ERIS”) provides property data for environmental assessments, environmental due diligence and property evaluations used by real estate appraisers/assessors, municipalities, developers/architects, legal firms, engineers, and financial institutions for accurate environmental information. GVC’s Specialty Technical Publishers (“STP”) helps with the audit, compliance, and regulatory guidance for companies involved in environmental management. GVC is currently investing to expand into the US. We estimate ERIS & STP generate ~$15M in revenues and is growing at 10% annually. ERIS’ competitor and comp, EDR (owned by Daily Mail and General Trust “DMGT”) has recently been acquired by private equity firm Silver  Lake and Battery Ventures for $205M. The business was growing revenues at 15% and was acquired for 2.5x sales. At 2-3x EV/Sales, ERIS & STP would be $30-45M or $0.27-$0.41 per share, almost half of current market cap.

ERIS: Covers 7.6 million square miles of environmental data on real estate (second largest data set in North America). ERIS customers on both sides of the border include: environmental consultants, corporate clients, lenders, lawyers and insurance companies. Whether, buying, selling, remediating, refinancing or redeveloping property, the law requires an environmental site assessment and ERIS has the data and historical products and records required.

In Property, GVC owns an online real estate portal, the Zillow-equivalent in Canada, REW.ca. REW.ca had 18M visitors in 2016 and 26M visitors in 2017. REW.ca grew revenues by 60%+ in 2017 with estimated ~20% EBITDA margins, where excess cash flows have been invested back into the business. We estimate the business has $5M in revenues with a long runway ahead. Precedent transactions and public comps (below) trade at a high multiple between 6-10x+ Sales for an online real estate portal and analytics business. For a business growing at 60% with high EBITDA margins and reinvestment opportunities for subsequent years, we believe REW.ca is worth 6-10x Sales or $30-50M or $0.27-$0.45 per share.

REW.ca: Glacier Media offers the largest residential and commercial real estate exposure in Canada, connecting advertisers with millions of buyers and sellers through our digital and print network. Our multi-channel marketing solutions are spearheaded by REW, Canada's leading portal for real estate listings, new home developments and property insights. Get results for your business with Glacier Media's custom website design, content creation, social media, digital and print advertising, and search engine marketing.

In Financial, GVC provides data, analytics, and information to the Canadian investment community. The main investment award providers for Canadian funds are Morningstar Inc., Fundata and Lipper Inc., which is a division of Thomson Reuters. Fundata is a 50% JV with 18M in 2017 Revenue and 22% CAGR Revenue growth for 3 years. Digital Financial Data and Analytic companies comparable to Fundata trade between 3-5x Sales. At 3-5x Sales, Fundata is $54-90M, and GVC’s portion for the 50% JV is worth $27-45M or $0.25-$0.41 per share.

FunData: Fundata’s extensive database includes more than 850 data points on over 35,000 investment funds in addition to more than 700 data points covering over 13,000 stocks.  Services include: fund listing, data feeds, fund marketing sheets, and point of sale fund facts documents delivery and storage. Fundata also delivers FundGrade performance ratings, Fundata Prospectus Risk Indices, FundProfiler, custom web solutions, and fund risk measures and rankings.

Our aggregate estimated value for the Environmental, Property, & Financial Segment would be $87-140M or $0.79-$1.27 per share or 3-5x Revenues. This segment generated $29M in Revenues and grew by 16% in 2017 with ~6-7M in EBITDA.

There are few business intelligence plays in the public markets and GVC’s growing business intelligence segment is shadowed by its newspaper business. We consider GVC’s Commodity segment and the Environmental, Property, and Financial segment together as business intelligence businesses. These types of businesses have high EBITDA and incremental margins and are valued between 2-5x Sales (below).

Combined GVC’s business intelligence businesses have 85M in revenues with 21% EBITDA margins and 13% EBITDA-Capex/Revenue margins. The Environmental, Property and Financial segment is growing 16% annually offset by the -7% decline in the Commodity segment; however, revenue in Energy group is recovering with more paid subscription and data products and Mining Group revenues is growing at 30%. Management believes the Commodity business is in a considerably better position today with the recent transition.

Conclusion & Sum-of-the-Parts

Glacier Media’s newspaper business is in a much better position than its Canadian competitors, Torstar and Postmedia, in terms of debt coverage, corporate governance, and print to digital transition. Digital revenues in their newspaper business grew by 50% last year and the cash flows are being reinvested into business intelligence (subscription & data) businesses which we believe have higher and stickier returns on capital. We think Glacier’s newspaper segment would safely place on the higher end of the multiple range, above $1.00 per share.

Combining the Commodity + Environmental, Property & Financial segments, we value the business intelligence businesses which generated $85M in revenues in 2017 for $143-$229M or 1.7x-2.7x EV/Sales. These types of businesses with paid subscription and valuable data libraries trade between 2-5x revenues. We think as these businesses consistently show growth and profitability, they will be revalued towards a 4-5x multiple of sales in the next 3-5 years.

Potential Tax Liability: GVC has paid $23 out of the $56M potential tax liability as a deposit. If GVC were to lose the appeal process, they would owe the remaining $33M, where as if they were successful in their appeal, they would receive a refund for their deposit of $23M. We have added both worst and best case scenarios to the Potential Tax Liability.

There are a number of ways to win with GVC:  A) 7% of GVC’s current total revenue is ERIS (www.erisinfo.com)  and REW ( www.rew.ca ) which we think could be worth the entire EV over the next 2-3 years leaving the other 93% for free  which generates ~$20 million in free cash and is probably worth $200 million+ b) free cash flow per share should grow of the current $20 million base as newspapers are converting to digital with 30% EBITDA margins, Energy/Mining commodity prices have rebounded, and most obvious Environmental, Financial, Property are growing 15%+ with 25% EBITDA margins.  c) We believe this will begin to look like a public company vs. a penny stock later this summer as the stock price will move from .83 cents to $8.30 with a coming reverse stock split plus quality assets with 10% free cash flow margins, and enough mass with $225 million in annual revenue. Another way to look at GVC, is we think ERIS and REW are worth 75% of the market cap and 50% of the enterprise value today, if ballpark correct the other 93% of the business is valued at about 2x EV/EBITDA. Glacier owns 160 brands: http://glaciermedia.com/brands/media-directory

 Disclaimer: This does not constitute a recommendation to buy or sell this stock.  We own shares of the company, and we may buy shares or sell shares at any time without updating the board.

[1] http://theconversation.com/year-of-reckoning-looms-for-canadas-newspapers-89066

Catalyst

• The market realizes Glacier is not a “melting ice cube” as free cash flow has stabilized and should begin to grow: REW, Digital newspaper front, ERIS, Mining/Energy, Canadian economy stronger, debt pay down.
• 10 for 1 reverse stock split likely to pass on June 19th will look more like an institutionally investable security as $8.30 stock with $2.00 in free cash flow vs. the current $0.83 stock with $0.20 in free cash flow!
• Debt pay down has been substantial, the company has an extraordinarily low valuation 5.5x EV/EBITDA, many of the assets are high quality and at key inflection points, and future cash flow should flow to equity value (vs. debt pay down)
• Cash flow should start to grow with strength in all markets driven by high growth in the data businesses and oil price recovery in Canada.
• Rapid high growth businesses REW and ERIS continue to grow. In a year or two these businesses alone representing 7% of revenue today might be worth closer to the entire EV especially with $20 million in annual free cash flow over the next few years! REW is growing revenue at 60%+.
• Collection of assets is simply too cheap at 0.7x sales and 5.5x EV/EBITDA.