David Atterbury of Whetstone Capital, InvestPitch presentation produced by sumzero and Institutional Investor on the long case for Gray Television, Inc. (NYSE:GTN).

Gray Television

Gray Television business overview:

  • Local TV broadcaster with CBS/NBC weighting
  • In 31 mid size markets
  • #1 in local news in 23 markets
  • Strategic focus on college towns and state capitals –  markets with above average demographics and revenue growth  – 17 markets are college towns – 8 markets are state capitals
  • Controlled by the Robinson Family

Why We Like Gray Today:

  • Substantial leverage to 2014 political advertising
  • Well positioned to grow through acquisitions using company’s new duopoly model
  • Above industry local ad growth
  • New retransmission contracts
  • Leverage to all of the above via current  balance sheet

Significant Industry Tailwinds

  • Retransmission: Broadcasters continue to extract significant recurring revenue from cable/satellite providers (MVPDs) on a monthly per subscriber basis allowing MVPDs to retransmit network content
  • Political Advertising: Citizens United v. FEC allows corporations, associations and unions to spend freely on political advertising –  significant implication for broadcasters as 45% of  political spending goes through local TV
  • Auto Advertising: Pent-up demand/aging fleet driving robust ad spend
  • Debt Refinancing: Companies have accessed debt markets to refinance high cost debt and fund industry consolidation
  • Industry Consolidation Wave

– Significant private & private equity backed opportunities remain available for acquisition

  • 50% of operators own less than 15 stations and are non-public
  • More privately owned properties will likely sell in 2014
  • Public market consolidation likely to follow

– Broadcasters with scale can better negotiate with networks, MVPDs and national advertisers

Industry Valuations

  • 2014/2015 EV/EBITDA Averages

– Gray Television, Inc. (NYSE:GTN), Nexstar Broadcasting Group, Inc. (NASDAQ:NXST), LIN Media LLC (NYSE:TVL) trade at ~8.5x

  • Pre recession multiples approached 10x EV/EBITDA

–  But these are better businesses now:

– Retransmission, political and digital revenue streams have greatly expanded

– Advertising revenue appears to be benefitting from the decline of the local newspaper

– Balance sheets have significantly improved

H/T Curry Goat

David Atterbury of Whetstone Capital: Long Gray Television