Description
ValueVision Media trades at 50% of its intrinsic vale, has no debt or long-term liabilities, at a slight premium to its cash and non-core assets. They are breakeven on cash flow and have some valuable cable/TV assets. This is Dhando-type investment, where the downside is limited and there is optionality on the upside.
I am writing this on-the-fly, just before a holiday weekend, so it will be brief. Plus, the story is not that complicated. VVTV is a sum-of-the-parts story, not an earnings story. Fortunately, a lot of the analytical work has already been done by someone else. If that is all you need, skip the “Background” section and go to the “Soundpost Partners” section.
Background: the main asset of ValueVision Media is the ShopNBC network, which is shop-at-home TV network. It is a distant 3rd to QVC and HSN with about $800 million in annual sales. However, they have an enviable clientele, as exemplified by their average price point of $240, which is 4-5X that of QVC. GE/NBC owns 25% of the common and 100% of a convertible preferred, giving them 38% ownership. The converts have a $8.29 strike price. There are 10.1 million of options and warrants outstanding, but with an weighted average strike price of $16.10, they are not likely to be a factor. GE/NBC has right of first refusal for any buyout and any change of control makes the converts redeemable at the strike price. VVTV has use of the NBC trademark and logo through 2011.
There are 35.9 million shares outstanding and 5.4 million convertible preferreds, giving 41.3 million fully diluted shares. At $6.02/sh, fully diluted market cap is $248 million, no debt, $102 million of cash and EV is $146 million.
Soundpost Partners: I do not know who Jaime Lester of Soundpost Partners is, but he filed a 13D last week, which included a letter to the interim CEO, John Buck. Here is the link:
http://www.sec.gov/Archives/edgar/data/870826/000091957407005163/d826880_13d.htm
The basics are that VVTV has the following non-core assets:
- Boston TV station worth $45 million
- Office real estate worth $25 million
- $52 million of NOL’s worth $20 million (currently valued at $0 on the balance sheet)
- 50% of ValuePay receivables worth $48 million
That comes to $138 million, which is 97% of VVTV’s EV, WITHOUT ascribing any value to their main network assets. VVTV has 69 million of cable & satellite full-time equivalent (FTE) subscribers for ShopNBC. Soundpost Partners listed a bunch of network transactions, and the lowest value per subscriber was about $4 for 2.6 million FTE’s at the Gospel Music Channel. Given ShopNBC’s upscale clientele, their subscribers should be worth more, but let’s assume $4. That implies a value of $266 million for their network assets. For a quick review, we have a fully diluted market cap of $248 million, with the following:
$102 million of net cash
+ $138 million of non-core assets/working capital extractions
+ $268 million of network subscriber assets @ $4 per subscriber
Total = $508 million
Significant Owners: Besides GE/NBC’s stake, Fine Capital recently filed a 13D with a 9.32% stake and 5% owners include Janus, Oppenheimer and William Blair.
Buybacks: The company bought back 1.1 million shares in the 3rd quarter and have $14 million left on the program. During yesterday’s conference call, they indicated that they will be active again in buying back stock.
Opportunities:
- improve margins. A big factor is that they are paying about $2 per subscriber, which translates into about 18% of sales. QVC and HSN pay on percent of sales, which is believed to be 5-8%. About 70% of their carriage agreements expire towards the end of 2008, so they have an opportunity to enter into more favorable agreements. During the yesterday call, during the Q&A segment, a caller noted that cutting what they pay per subscriber (carriage costs) in half would generate $1/sh in after-tax income.
- Digital costs are less than analog, so more digital subscribers helps them
- Internet sales are now 28% of sales, and they tend to generate incrementally more sales, while requiring less human cost.
- For every $1 increase in per subscriber valuation, the value of VVTV increases $1.67/sh.
Risks:
- They are looking for a CEO
- GE/NBC still controls a lot of what happens
- While not burning cash, they are not currently generating any, either.
- The carriage agreements do not yield any significant improvements to carriage costs
Quick References:
Most recent earnings release (replay of earnings call at 1-800-234-5713):
http://www.sec.gov/Archives/edgar/data/870826/000129993307006754/exhibit1.htm
Most recent earnings call transcript:
http://seekingalpha.com/article/54914-valuevision-media-q3-2007-earnings-call-transcript?source=yahoo
Most recent 10-K:
http://www.sec.gov/Archives/edgar/data/870826/000095013707005617/c14147e10vk.txt
Most recent proxy:
http://www.sec.gov/Archives/edgar/data/870826/000095013707008375/c15631ddef14a.txt
Investor presentation from January:
http://www.b2i.us/Profiles/Investor/Investor.asp?BzID=949&from=du&ID=34658&myID=1397&L=I&Validate=3&I=
Catalyst
Dhando!