Description

Overview & General Thesis

If Glacier Media was a pure legacy newspaper business the current EV of $32 million (compared to trailing revenue of ~$170 million) might make sense.  However a growing digital transformation is advancing, digital media plus the very digital and growth focused Environmental and Property Information segment now represents ~$70 million in revenue (or ~41% of the total).  Digital revenue has been growing at ~20% for some time in a fairly recession resilient manner, albeit with heavy investment. 

Margins have been lumpy while they invest in digital initiatives, deal with declining legacy print newspaper revenue, the pandemic, etc.  These growing revenues are overtaking the declining print revenues to the point that they are at or near an inflection point.  The company has a net cash surplus. Albeit lumpy, trailing EBITDA (factoring out trailing pandemic subsidies), amounts to about $10 million vs the above mentioned EV of $32 million. The stock seems very mispriced with little consideration given to the significant & ongoing growth in digital, but there is a CRA dispute to consider.

Revenue Canada Agency (CRA) Dispute

The company has a long standing dispute with Revenue Canada.  As a requirement to appeal, the company deposited $23.5 million representing 50% of CRA’s reassessment claim at the time.  The claim with interest has grown to $62 million at present. 

The reassessment by CRA and subsequent appeal dates back to 2014, so this is 8 years in the making.  The company seems to have a good case but until there is a verdict or some kind of settlement this overhang remains.  Best case is the company is returned the deposit with interest which would reduce EV to near zero.  The flip side is if the company were to fail completely in their appeal, with current interest charges they would be required to pay a further $39 million. The market seems to be betting on the latter.  

Environmental and Property Information Segment (comprised of 3 subsegments)

REW

REW is the leading residential real estate listings and property information marketplace in British Columbia. They are expanding in Ontario and other parts of Canada. The REW marketplace provides consumers with key real estate information and insights in order to make better informed decisions. Agents, new home developers and third-party providers (e.g. mortgage brokers, home insurance companies) use a variety of REW advertising, lead generation and subscription products to market their offerings to home buyers and sellers.  

REW is now #1 in traffic and audience in B.C. after surpassing realtor.ca. The expansion across Canada continues.  An online brokerage in partnership with DLC Group (IE. Dominion Lending Centres) has been in the works and recently launched/branded as ‘REW Money’.  DLC has the largest market share of new mortgage business in Canada ($81 billion funded volume TTM). The new initiative will combine property search with the lowest cost mortgage financing.  

Drilling down into DLC’s history, they indicate a recession resilient asset-light model with 20+ percent growth the last few years and a market share in Canada of 40%.  They see margin expansion opportunities and potential of adding revenue streams such as insurance.

REW’s aspiration is to be the #1 digital portal across Canada for home seekers.  In BC they can pretty much take full claim of this, the DLC partnership should help propel them along in the rest of the country.  

ERIS 

Provides environmental risk data and related products for commercial real estate properties across North America. This information is used by environmental consultants, CRE brokers, financial institutions and insurance companies.  When buying, selling, remediating, refinancing or developing commercial property, ERIS provides the data and historical products and records required to do the necessary environmental site assessment.

In late 2020, ERIS greatly expanded and enhanced their product offering upon the acquisition of Geo-Search (based in Austin, Texas).  ERIS headquarters is in Toronto, Ontario but also has an office in Fort Wayne, Indiana.  ERIS is the #1 provider of CRE environmental data in the Canadian market and is #2 in the United States. They have also extended their reach globally.

STP

STP produces digital audit guides and compliance tools for use in environmental health safety, transportation, risk management and business practices with a full range of international audit content. STP audit guides are designed specifically for corporate compliance and audit managers, professionals, and business leaders who need practical interpretation and application of rules and regulations.  Multinational companies license STP’s content for use throughout the United States and across more than forty countries worldwide.

Commodity information

The company sold JWN Energy in March of 2021.  Remaining segments consist of Glacier FarmMedia (GFM) and Glacier Resource Innovation Group (RIG).

GFM is Canada’s leading provider of agricultural information serving the Canadian grower and agricultural industry with digital media, listings, publications, exhibitions and weather and commodities marketing subscriptions. Well-known brands include the Western Producer, Alberta Farmer Express, Manitoba Co-Operator, Country Guide, Farmtario, Canada’s Outdoor Farm Show, Ag In Motion, AgDealer, Global Auction Guide, MarketsFarm, METOS Canada and Weather Innovations. 

RIG exclusively serves the mining industry, associated suppliers and the financial industry with a wide variety of intelligence offerings. With operations in Vancouver and Toronto, RIG produces databases, conferences, digital media and e-learning programs for the mining sector. Key brands include the Northern Miner, the Canadian Mining Journal, CostMine, edumine, Mining.com and the Global Mining Symposium. 

Community Media

Digital Media

Operations include local news, general community information and classifieds websites; digital marketing services; and specialty products and services. Their strategy is to build a standalone digital local media business with leading market positions in British Columbia and other Western Canadian markets. 

In 2019 they bought Okanagan based Castanet Media. Castanet has operated since 2000 and has become one of the most visited media websites in Western Canada for news, classifieds, weather and entertainment.

At or before the time of the Castanet acquisition, ‘Vancouver is Awesome’ had established itself to the point of sustaining sufficient profits to support itself on a stand alone basis.  However, since the Castanet acquisition digital progress seems to have accelerated. The model Castanet has built is repeatable in the numerous local community newspapers owned by the company and its affiliates.

The Local News Network (which includes Glacier’s websites and network partners) is now one of the largest digital advertising networks in Canada as measured by page views. 

Newspaper Group

The Community Media newspaper group operations reach over 2 million readers in print in over 60 local markets primarily in BC, Alberta, Saskatchewan, and Manitoba. Its brands include the Victoria Times-Colonist, North Shore News, Tri-Cities News, Burnaby Now, Richmond News, Prince George Citizen, St. Albert Gazette, Estevan Mercury, Yorkton This Week and many others. 

While expanding its offerings of digital products and marketing services, the Company is continuing to publish newspapers as they still provide value to readers and advertisers, content and sales resources that can be shared with its digital products. The sharing of these resources and the cash flow generated are assisting with the transformation to local digital media operations.

Revenue Breakdown of various segments

Environmental and Property Information Segment (ERIS, STP and REW)

Trailing revenue for this segment is ~$47 million but requires a downward adjustment (see ERIS + STP below). Subsegment revenues are not broken out separately, but below are my estimates. 

• Estimated revenue for REW is ~$9 million.  REW has been the quickest growing business unit (30-50% or more), but the present rise in interest rates and associated housing correction may temper this for a bit.

• ERIS + STP make up the balance of ~$38 million in revenue.  However, this includes the 45% owned by controlling shareholder (of GVC) Madison Venture - so assume net revenue here of $21 million. 

Commodity Information

Trailing revenue is ~$40 million.  Re-opening of their outdoor show(s), the general outlook for mining and agriculture along with digital initiatives could possibly reignite some growth, but not considering it in my valuation.

Community Media

Community Media’s net trailing revenue is ~$100 million.  I have estimated the current percent digital at Q2 of ~40% (vs ~35% year prior).  So assume the mix is currently $40 million digital and $60 million print revenue.

Summing It Up - Valuation

REW revenue = $9 million

3.5x multiple = $31 million <<

(See Note 1)

ERIS + STP revenue (Net to GVC) = $21 million 

1.5x multiple = $32 million <<

(See Note 2)

Commodity Information revenue = $40 million

1.0x multiple = $40 million << 

(See Note 3)

Community Digital Media revenue = $40 million

1.5x multiple = $60 million << 

(See Note 4)

Community Newspapers revenue = $60 million revenue

0.33x multiple = $20 million <<

(See Note 5)

Net Cash on Balance Sheet = $14 million <<

Centralized and Corporate expense offset = ($29 million) <<

(See Note 6)

Total (prior to CRA settlement outcome) = $168 million or $1.26/share <<

Note 1. 

There are certainly comparables much higher and if REW can continue advancing their growth rate per historical trend this could prove overly cautious. For now I find a 3-4x revenue multiple reasonably conservative.

Note 2. 

The partial sale to Madison(2020) valued ERIS + STP at $15.4 million.  The subsequent purchase of Geosearch (also 2020) was valued at $8.2 million.  Both are based on the GVC’s retained 55% portion.  Adding a small acquisItion afterward brings the total to ~$24 million. A significant bump in immediate growth occurred upon the Geosearch acquisition - figure at least 15-20% overall.  The resulting value from the multiple used above implies a further $3-4 million premium over/above which seems justified given the transformative nature of integrating Geosearch into ERIS.

Note 3.

The Commodity Info group has traditionally seen EBITDA margins of 15-20%+.  This has fallen off from pandemic closure of outdoor shows, the sale of JWN Energy, digital initiatives, etc.  Assuming a low end 15% EBITDA margin with a 6.5x multiple equates to ~1.0x revenue multiple.

Note 4.  

Castanet was purchased for $22 million in 2019. That’s 37% of the $60 million estimated total value for digital media.  Add in a value for ‘Vancouver is Awesome’ and we could be well over 50%.  With the vast amount of further digital media at various stages of transformation this seems conservative enough, with possible multiple expansion as these digital properties are built out.

Note 5.

The print newspapers are worth something and there is at least a token amount of land & buildings remaining on the books.  0.33x revenue equates to $20 million for everything.

Note 6.

Centralized and Corporate expense is running ~$4-5 million/year.  Using the same EBITDA multiple as the Commodity Info group seems reasonable to account for this offset.  6.5 x $4.5 million = ($29 million)

Conclusion

For the past 5 quarters, overall revenues have increased vs the year prior period.  Part of this has to do with exiting the pandemic, but at very minimum the strong digital assets have grown to the point they are stabilizing the decline in newspaper revenue. An inflection point where revenues start trending upward seems very near.  The company should be in pretty good shape to weather the current downturn.

The valuation above is prior to the outstanding CRA outcome.  In my view the odds are more likely there would be a return of funds vs any further payment.  But even based on the very worst outcome (see below*), I find the stock trading at ~36 cents on the dollar.

* CRA settlement adjustment:

>> VERY Best Case > Add $31 million or $0.23/share = $1.49/share << 

>> VERY Worst Case > Deduct $39 million or $0.29/share = $0.97/share <<

Bill C-18 (Online News Act)

Side note on Bill C-18 meant to force digital tech giants (Google, Facebook, etc) to share profits with Canadian media outlets when making money off their content.  While GVC may benefit assuming the Bill passes, there could also be offsets.  Just a lot of unknowns to me in assigning any value to this.  GVC has made private agreements of their own and may already be benefitting in some manner.  Bill C-18 could either let these private agreements stand or have them ripped up - at least how I understand it.

Something else to consider is the company’s digital initiatives seem more aligned with what goes on in the tech world at large.  In the end I don’t think it’s the GVC types who are picking this fight.  More than likely it’s the digitally disadvantaged.  That’s my take. 

Risks

• Margins do not materialize enough to support the above revenue multiples.

• Madison Venture and affiliated executives control 54% of the stock.  Risk of Madison doing a take-under might be considered; however, there are numerous examples of this not being in their nature.

• Unfavourable CRA outcome.

Catalyst

• Favourable CRA outcome.

• Further digital growth and monetized profits.

• Sale of business unit(s)