McGraw-Hill price tag makes TV stocks look cheap


Television station transaction multiples remain below pre-recession levels, but the sale of McGraw-Hill’s TV group to Scripps for $212 million is certainly at a multiple above where pure play TV stocks are trading on Wall Street. Wells Fargo Securities analyst Marci Ryvicker used the deal news to reiterate her “outperform” ratings on both Belo and Sinclair.

As reported, Scripps CFO Tim Wesolowski put the cash flow multiple at eight times, after deducting a $20-25 million tax benefit from the purchase price. RBR-TVBR surmised that it appeared to be a nine times multiple from the seller’s side. Those multiples are looking at projected 2012 financials. The Wall Street Journal quoted a source putting the multiple at 10, which would appear to be based on 2011 projected cash flow.

In any case, TV stocks are trading on Wall Street well below that level.

“Bottom line: We believe yesterday’s news is a positive for the broadcast TV space as it should provide significant valuation support. BLC and SBGI are currently trading at 5.6x and 6.2x blended 2011E/2012E EV/EBITDA, respectively – applying an 8.0x multiple to these two companies would result in stock valuations of approximately $9.50 (+113%) for BLC and $12.75 for SBGI (+83%), reaffirming our Outperform ratings,” Ryvicker told clients on Tuesday morning.

And the analyst had a note to add about business conditions:

“On last night’s call, which was primarily focused on the announced transaction, management did comment (in response to a question) that Japanese auto dollars have returned to the marketplace.  The magnitude of such spend was not quantified, but we view the comments and associated tone as good news for the broadcasters nonetheless,” she said.

RBR-TVBR observation: Not only are TV stocks trading well below private market valuations for station, but some of them also pay cash dividends. Since we noted the high yields of those stocks they’ve only gotten higher. Sinclair is now paying 6.7% and Belo 4.1%.

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