Analysts spell out takeaways from the NAB Show


After spending last week at the NAB Show in Las Vegas, Wells Fargo Securities high-yield bond analyst Bishop Cheen and equities analyst Marci Ryvicker report that the mood was upbeat, despite ongoing and emerging challenges for broadcasters. Item one: “Ad media’s recovery is more than evident, it is surpassing expectations of just a few months ago.”

In a note to investors, the analysts note that Q2 pacings are up 20%-plus for TV and high single to low double digits for radio, due to easy year-over-year comps, plus resurging auto ad spending and robust political advertising. “Heretofore anemic local is just beginning to catch up to national — the driver in Q1 — although national’s inherent presence in large markets makes it more difficult for local to match national’s pace. Some radio executives with whom we spoke are starting to believe that radio is capable of posting a double-digit gain in 2010 — a rebound few were willing to believe in mid-2009. Still, even at a 10% growth rate this year, industry-wide radio revenue would be at 1999 levels of $17.6 billion. As for TV, we heard from a few executives who lamented that despite the recovery, station ad revenue may not return to peak levels until 2012 — if then,” Ryvicker and Cheen wrote.

“Auto spending is the top or close-second category leading local TV and radio advertising to recovery. For example, GM’s advertising on TV quadrupled in January and February (albeit against very easy comps),” the analysts noted. “Industry analyst Magna Global is forecasting a 16% rise in local broadcast TV revenue in 2010 to be led by auto ad spending. Still, more than a few TV execs with whom we spoke expressed caution that though spending is well above 2009 levels, the industry still has a ways to go to get back to 2008 and prior levels,” they added.

Based on their conversations in Las Vegas, the Wells Fargo analysts report that expenses are under control at broadcasting companies and that debt reduction is still the top priority of broadcast operators. “Operators and lenders both say that the most contentious part of their negotiations are behind them, with refinancings already completed or about to be. The second priority is still strategic or tuck-in acquisitions for operators who are already on schedule to reduce debt or have near-moderate balance sheets,” the report stated.

“Although we did not sense any appetite by traditional lenders for stand-alone acquisition financing, we understand that a few big banks met with Cumulus Radio Investors’ principal, Lew Dickey, to hear his plans for the recently announced $1 billion investment pool to acquire radio properties,” Cheen and Ryvicker reported.

“Asset values are still difficult to confirm, because there has not been any meaningful M&A in small- to mid-cap broadcasting for two and a half years. We have the sense that the bid-ask is still far apart at 5x–10x cash flow, although we hear the spread may be narrowing with a slight bias toward the ask,” the analysts told clients. “Lenders appear more comfortable refinancing stations with 2x–4x senior bank debt, with the balance shouldered by second lien, high yield and ‘debtquity’ (mezzanine and equity),” they added.