Lower ad market assumptions; limited upside
We revised our
valuation for DYH due to lower than expected TV ad spend (+1% y/y in 1H12). We
now forecast 3% increase in TV ad spend (+6% previously). TV rating measurement
finally restarted in mid-Sep’12 after nine months of disruption and should
increase the growth of TV ad market in 2H12 (+3% y/y), in our view.
DYH announced TL158mn
net earnings in 1H12. Other than TL143mn gain coming from Hurriyet’s HQ sale in
1Q12 (vs. our TL130mn estimate), the company recorded a TL46mn one-off gain on
cancellation of call option related to Eko TV in 2Q12. Also, we were expecting
the gain on D&R sale (TL80mn) as profit from discontinued operations in
P&L but the company booked the gain (TL108mn) under its equity. Those
changes have reduced our 2012E net profit estimate by 14% to TL183mn now.
After Star TV disposal
in late 2011, the much expected improvement in broadcasting segment has started
from 4Q11. We calculate that after the asset disposals DYH’s consolidated
EBITDA margin improved by 4%. We anticipate DYH to post 14.6% EBITDA margin in
2012E (1H12A: 14.2%).
The changes to our
valuation including a downward revision to ad market forecasts and a downward
revision to Hurriyet’s target price lower our 12 month target price by 19% to
TL0.71/sh. We downgrade our rating to HOLD from BUY. We foresee a limited 15%
total return potential in the shares in the next 12 months. Although DYH looks
cheap compared to peers on 2013E and 2014E multiples and offers stronger
revenue growth prospects, we believe that the share price has been moving more
with newsflow linking media owners to the 28 Feb investigation, resulting in a
sell-off in all Dogan Group shares before. The progress of the Parliamentary
Commission investigating the matter will be closely watched by the market.
Any cost overruns or
slippage in attaining the targeted operating profits would create a higher risk
for DYH due to its financial debt and tax liabilities. Similarly a worse than
expected slowdown in the economy, weak TL, a more challenging competitive landscape
are the other risks.
BGC Partners
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