Grupo Televisa SAB: Growth And Value All In One

Grupo Televisa SAB ADR (NYSE:TV) is a stock that many U.S. investors may be oblivious to, even though the company is a significant stakeholder in the North American Univision television network. Nonetheless, investors seeking international exposure at a bargain price are advised to keep an eye on this one.

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Grupo Televisa SAB's Background

The Mexico City, Mexico-based Grupo Televisa SAB is a huge media conglomerate that diversifies its business operations into four business segments: Content; Cable; Sky; and Other Businesses. The Content segment alone is a diversified business in its own right, with sub-segments in advertising (which contributed 18.3% of 2019 sales revenue), network subscription revenue (4.7%) from over 46 million customers, and licensing and syndication (9.8%) across more than seventy countries. In sum, the Content segment generated 33% of Grupo Televisa's sales revenue for 2019.

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Grupo Televisa SAB's investment in its Cable segment promises great growth for the firm going forward. Image provided by Broadband TV News.

The Cable segment is Grupo Televisa's heavy-hitter, as this segment contributed 39.2% of 2019 sales revenue, and is expected to grow in the years ahead as last year Grupo Televisa attained 12.7 million revenue generating cable units. This will increase the revenue and income which the Cable segment provides, and as this caps the huge investment that Grupo Televisa has made into this segment in recent years, capital expenditure will decrease going forward too - maximizing the profitability of the Cable segment all round.

Sky, the third segment being looked at here, is a satellite network which operates in Mexico, Central America, and the Dominican Republic, and in which Grupo Televisa SAB owns a 58.7% stake. It contributed 20.1% of 2019 sales revenue, while the fourth segment, the Other Businesses (feature-film distribution, gaming, publishing, soccer, and the Univision stake) all contributed 7.7%. All told, this accounts for the steady revenues that Grupo Televisa has reported over the past five years, and the net income figures should continue to rise now that the Cable segment has been built out.

Year Revenue (Mex$) Revenue ($) Net Income (Mex$) Net Income ($)
2015 88.05 billion 3.81 billion 10.9 billion 470 million
2016 96.29 billion 4.17 billion 3.72 billion 160 million
2017 94.27 billion 4.08 billion 4.52 billion 200 million
2018 101.28 billion 4.39 billion 6.01 billion 260 million
2019 101.76 billion 4.41 billion 4.63 billion 200 million

Figures collated from annual reports available on Grupo Televisa's investor relations page.

However, the Q1 2020 results may seem at first glance to undermine this optimistic outlook, as revenue of Mex$23.23 billion ($1.01 billion) and net income of -Mex$9.65 billion (-$420 million) were reported, as was negative free cash flow of -Mex$1.43 billion (-$60 million). Grupo Televisa has made no bones about the adverse impact that the coronavirus outbreak has had on its operations, and warned that this impact may well continue into successive financial quarters:

The Impact Of COVID-19

The COVID-19 pandemic has affected our business, financial position and results of operations for the first quarter ended March 31, 2020, and it is currently difficult to predict the degree of the impact on the second quarter and the remainder of 2020.

In bracing itself for this impact, Grupo Televisa SAB has taken the following measures: it has closed some Sky and Cable branches, ceased film distribution and soccer, and suspended the dividend for 2020 to maximize liquidity. This last move is prudent in light of Grupo Televisa's long-term finances, as long-term debt of Mex$166.45 billion ($7.21 billion) significantly outpaces the firm's net worth of Mex$81.93 billion ($3.55 billion) - largely a consequence of the multi-year investment in the Cable segment. Short-term finances are in better shape, as total current liabilities of Mex$51.26 billion ($2.22 billion) are offset by total current assets of Mex$89.41 billion ($3.87 billion), cash-on-hand worth Mex$44.94 billion ($1.95 billion), and total accounts receivable of Mex$34.08 billion ($1.48 billion).

This being said, the coronavirus should be seen as a short-term event, and should not obscure Grupo Televisa SAB's long-term prospects. It is a strongly established player in the Americas, and the second-largest mass media company in Latin America. And in spite of the current set of circumstances, earnings-per-share growth over the next year is projected to grow by 125%. Consequently, prospective investors should be interested - particularly in light of the current valuation.

Grupo Televisa SAB

At close of market on 07/06/2020, Grupo Televisa, S.A.B. traded at $5.37 per share. Chart generated by FinViz.

P/E Ratio

At close of market on 07/06/2020, Grupo Televisa SAB traded at a share price of $5.37. As earnings-per-share are -$0.44, it has no trailing price-to-earnings ratio, but does have a forward P/E of 28.12 based on projected earnings-per-share of $0.19, which is lower than the five-year average P/E of 46.63. The forward P/E is also lower than the broadcasting (except Internet) sub-sector average of 31.99 and the S&P 500 (SPY) average of 22.34. By almost every metric, Grupo Televisa appears to be trading at a discount to both its sub-sector and to the broader index.

Metric Grupo Televisa SAB Sub-Sector Index
P/E 28.12 31.99 22.34
P/CF 2.05 9.90 5.67
P/B 0.63 2.60 1.52
P/S 0.56 116.26 1.08

 

Figures collated from FinViz, Morningstar, and TheStreet.

This prompts the question of what fair value for Grupo Televisa SAB is. To determine fair value, I will first divide the forward P/E by the historical market average of 15 to get a valuation ratio of 1.88 (28.12 / 15 = 1.88) and divide the current share price by this valuation ratio to get a first estimate for fair value of $2.86 (5.37 / 1.88 = 2.86).

Then I will divide the forward P/E by the five-year average P/E to get a valuation ratio of 0.60 (28.12 / 46.63 = 0.60) and divide the current share price by this valuation ratio to get a second estimate for fair value of $8.95 (5.37 / 0.60 = 8.95). Finally, I will average out these three estimates to get a final estimate for fair value of $5.91 (2.86 + 8.95 / 2 = 5.91). On the basis of this estimate, Grupo Televisa's stock is undervalued by 9% at this time.

In summary, Grupo Televisa SAB will see growth coming from its Cable segment in particular in the years ahead, and on that basis qualifies as a growth stock. It currently trades at a 9% discount to fair value, which qualifies it as a value stock. And while the dividend has been suspended for 2020 in light of COVID-19, it has not been permanently scrapped, so for a patient long-term investor it will likely resume being an income stock too once COVID-19 abates.