Study: Local Broadcast Valuations Off 32%

Multiples don't reflect bright business prospects for 2012

By Michael Malone -- Broadcasting & Cable, 2/2/2012 5:10:17 PM

Valuation multiples for local broadcasters are off 32% compared to the same stage of the last two year cycle, showing a continued cool reception from investors, despite a positive outlook for stations in 2012. The findings come from the media investment bank M.C. Alcamo & Co.

As of the close of trading Jan. 31, six pure-play broadcasters traded at an average multiple of 7.3x, according to Alcamo – down 32% from the same period two years ago. Fisher was highest of the bunch at 8.6x, trailed by Nexstar at 7.9x.

Multiples at so-called "integrated media firms," which own stations and other assets, were 6x – down 25% from January 2010, due in part to the ailing newspaper industry. Media General had the highest multiple in this group of eight at 8.6x, followed by Entravision at 8.5x. Gannett and Washington Post were at the low end of the valuation spectrum, according to M.C. Alcamo, at 4.3x and 4.6x.

"Investors remain cautious about broadcast, despite rising profitability, improved credit profiles, an excellent outlook for 2012, and audience trends all pointed in the right direction," said Michael Alcamo, president. "Moreover, investors are apparently assessing a valuation discount of 19% against media groups which own non-broadcast assets, particularly newspaper assets."

Wall Street trading reflects this investor indifference to local broadcasting. While the S&P 500 is currently 80% of its 52-week high water mark, pure-play broadcasters' stocks are only 64% of their 52-week high, while stocks of integrated media groups are 59% of their year-long high.

"Given strong balance sheet positions, the advertising recovery, controlled cost situations at all major broadcasters, and the typically high beta of broadcasters, it seems incongruous that share prices have lagged behind the broader index," said Alcamo. "In view of technical advances in master control, rising levels of retransmission revenue, and a resilient advertiser proposition from the high definition consumer experience, we nevertheless believe that broadcasters will increasingly be seen as strong cash-producing businesses."