Intrinsic value of Central European Media Enterprises Cl A - CETV

Previous Close

$4.70

  Intrinsic Value

$6.63

stock screener

  Rating & Target

buy

+41%

Previous close

$4.70

 
Intrinsic value

$6.63

 
Up/down potential

+41%

 
Rating

buy

We calculate the intrinsic value of CETV stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.28
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
Revenue, $m
  638
  664
  691
  720
  750
  783
  818
  854
  893
  933
  977
  1,022
  1,070
  1,120
  1,173
  1,229
  1,288
  1,350
  1,416
  1,484
  1,557
  1,633
  1,712
  1,796
  1,885
  1,977
  2,075
  2,177
  2,285
  2,398
  2,516
Variable operating expenses, $m
 
  557
  577
  599
  622
  646
  672
  700
  728
  759
  791
  765
  801
  839
  879
  920
  965
  1,011
  1,060
  1,111
  1,165
  1,222
  1,282
  1,345
  1,411
  1,480
  1,553
  1,630
  1,710
  1,795
  1,884
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  677
  557
  577
  599
  622
  646
  672
  700
  728
  759
  791
  765
  801
  839
  879
  920
  965
  1,011
  1,060
  1,111
  1,165
  1,222
  1,282
  1,345
  1,411
  1,480
  1,553
  1,630
  1,710
  1,795
  1,884
Operating income, $m
  -39
  107
  113
  121
  128
  137
  145
  154
  164
  174
  185
  257
  269
  282
  295
  309
  324
  339
  356
  373
  391
  410
  430
  452
  474
  497
  521
  547
  574
  603
  633
EBITDA, $m
  328
  256
  266
  277
  289
  302
  315
  329
  344
  360
  377
  394
  412
  432
  452
  474
  497
  521
  546
  572
  600
  629
  660
  693
  727
  762
  800
  839
  881
  924
  970
Interest expense (income), $m
  54
  56
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  95
  101
  106
  112
  118
  124
  130
  137
  145
  152
  161
  169
  178
  187
  197
  208
  219
  230
  242
Earnings before tax, $m
  -173
  50
  56
  61
  65
  70
  75
  81
  87
  93
  99
  166
  173
  181
  189
  197
  206
  216
  225
  236
  247
  258
  270
  282
  296
  310
  324
  340
  356
  373
  390
Tax expense, $m
  8
  14
  15
  16
  18
  19
  20
  22
  23
  25
  27
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  96
  101
  105
Net income, $m
  -180
  37
  41
  44
  48
  51
  55
  59
  63
  68
  72
  121
  127
  132
  138
  144
  151
  157
  165
  172
  180
  188
  197
  206
  216
  226
  237
  248
  260
  272
  285

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  43
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,391
  1,403
  1,460
  1,521
  1,586
  1,655
  1,728
  1,806
  1,887
  1,974
  2,065
  2,161
  2,262
  2,369
  2,481
  2,599
  2,724
  2,855
  2,993
  3,138
  3,291
  3,451
  3,620
  3,798
  3,984
  4,180
  4,386
  4,603
  4,830
  5,069
  5,320
Adjusted assets (=assets-cash), $m
  1,348
  1,403
  1,460
  1,521
  1,586
  1,655
  1,728
  1,806
  1,887
  1,974
  2,065
  2,161
  2,262
  2,369
  2,481
  2,599
  2,724
  2,855
  2,993
  3,138
  3,291
  3,451
  3,620
  3,798
  3,984
  4,180
  4,386
  4,603
  4,830
  5,069
  5,320
Revenue / Adjusted assets
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
Average production assets, $m
  428
  445
  463
  483
  504
  525
  549
  573
  599
  626
  655
  686
  718
  752
  787
  825
  865
  906
  950
  996
  1,044
  1,095
  1,149
  1,205
  1,265
  1,327
  1,392
  1,461
  1,533
  1,609
  1,689
Working capital, $m
  168
  131
  136
  142
  148
  154
  161
  168
  176
  184
  192
  201
  211
  221
  231
  242
  254
  266
  279
  292
  307
  322
  337
  354
  371
  390
  409
  429
  450
  472
  496
Total debt, $m
  1,004
  1,023
  1,074
  1,129
  1,188
  1,250
  1,316
  1,385
  1,459
  1,536
  1,618
  1,705
  1,796
  1,892
  1,993
  2,099
  2,212
  2,330
  2,454
  2,584
  2,722
  2,866
  3,018
  3,178
  3,346
  3,522
  3,708
  3,902
  4,107
  4,322
  4,548
Total liabilities, $m
  1,244
  1,263
  1,314
  1,369
  1,428
  1,490
  1,556
  1,625
  1,699
  1,776
  1,858
  1,945
  2,036
  2,132
  2,233
  2,339
  2,452
  2,570
  2,694
  2,824
  2,962
  3,106
  3,258
  3,418
  3,586
  3,762
  3,948
  4,142
  4,347
  4,562
  4,788
Total equity, $m
  147
  140
  146
  152
  159
  166
  173
  181
  189
  197
  206
  216
  226
  237
  248
  260
  272
  286
  299
  314
  329
  345
  362
  380
  398
  418
  439
  460
  483
  507
  532
Total liabilities and equity, $m
  1,391
  1,403
  1,460
  1,521
  1,587
  1,656
  1,729
  1,806
  1,888
  1,973
  2,064
  2,161
  2,262
  2,369
  2,481
  2,599
  2,724
  2,856
  2,993
  3,138
  3,291
  3,451
  3,620
  3,798
  3,984
  4,180
  4,387
  4,602
  4,830
  5,069
  5,320
Debt-to-equity ratio
  6.830
  7.290
  7.360
  7.420
  7.490
  7.550
  7.610
  7.670
  7.730
  7.780
  7.840
  7.890
  7.940
  7.990
  8.030
  8.080
  8.120
  8.160
  8.200
  8.240
  8.270
  8.300
  8.340
  8.370
  8.400
  8.430
  8.450
  8.480
  8.500
  8.530
  8.550
Adjusted equity ratio
  0.077
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -180
  37
  41
  44
  48
  51
  55
  59
  63
  68
  72
  121
  127
  132
  138
  144
  151
  157
  165
  172
  180
  188
  197
  206
  216
  226
  237
  248
  260
  272
  285
Depreciation, amort., depletion, $m
  367
  149
  153
  157
  161
  165
  170
  175
  180
  185
  191
  137
  144
  150
  157
  165
  173
  181
  190
  199
  209
  219
  230
  241
  253
  265
  278
  292
  307
  322
  338
Funds from operations, $m
  -321
  186
  194
  201
  208
  216
  225
  234
  243
  253
  264
  259
  270
  283
  295
  309
  323
  339
  355
  371
  389
  407
  427
  447
  469
  491
  515
  540
  566
  594
  623
Change in working capital, $m
  -355
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
Cash from operations, $m
  34
  181
  189
  195
  202
  210
  218
  227
  236
  245
  255
  250
  261
  273
  285
  298
  312
  326
  342
  358
  375
  392
  411
  431
  451
  473
  496
  520
  545
  572
  599
Maintenance CAPEX, $m
  0
  -86
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -125
  -131
  -137
  -144
  -150
  -157
  -165
  -173
  -181
  -190
  -199
  -209
  -219
  -230
  -241
  -253
  -265
  -278
  -292
  -307
  -322
New CAPEX, $m
  -30
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
Cash from investing activities, $m
  -28
  -103
  -107
  -112
  -118
  -123
  -128
  -135
  -141
  -147
  -154
  -161
  -169
  -178
  -186
  -195
  -205
  -215
  -225
  -236
  -247
  -260
  -273
  -286
  -300
  -315
  -330
  -347
  -364
  -383
  -402
Free cash flow, $m
  6
  78
  81
  83
  85
  87
  90
  92
  95
  98
  101
  88
  91
  95
  99
  103
  107
  112
  117
  122
  127
  133
  138
  145
  151
  158
  165
  173
  181
  189
  198
Issuance/(repayment) of debt, $m
  -8
  20
  52
  55
  58
  62
  66
  70
  73
  78
  82
  86
  91
  96
  101
  107
  112
  118
  124
  131
  137
  144
  152
  160
  168
  176
  185
  195
  205
  215
  226
Issuance/(repurchase) of shares, $m
  7
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -23
  20
  52
  55
  58
  62
  66
  70
  73
  78
  82
  86
  91
  96
  101
  107
  112
  118
  124
  131
  137
  144
  152
  160
  168
  176
  185
  195
  205
  215
  226
Total cash flow (excl. dividends), $m
  -18
  98
  133
  138
  144
  149
  156
  162
  169
  176
  183
  174
  183
  191
  200
  210
  219
  230
  241
  252
  264
  277
  290
  304
  319
  334
  351
  368
  385
  404
  424
Retained Cash Flow (-), $m
  171
  -35
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
Prev. year cash balance distribution, $m
 
  42
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  104
  127
  132
  137
  143
  148
  154
  160
  167
  174
  165
  172
  180
  189
  198
  207
  217
  227
  238
  249
  261
  273
  287
  300
  315
  330
  346
  363
  380
  399
Discount rate, %
 
  9.10
  9.56
  10.03
  10.53
  11.06
  11.61
  12.19
  12.80
  13.44
  14.12
  14.82
  15.56
  16.34
  17.16
  18.02
  18.92
  19.86
  20.86
  21.90
  23.00
  24.15
  25.35
  26.62
  27.95
  29.35
  30.82
  32.36
  33.97
  35.67
  37.46
PV of cash for distribution, $m
 
  96
  106
  99
  92
  84
  77
  69
  61
  54
  46
  36
  30
  25
  21
  16
  13
  10
  8
  6
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Central European Media Enterprises Ltd. (CME Ltd.) is a media and entertainment company operating in Central and Eastern Europe. The Company's assets are held through a series of Dutch and Curacao holding companies. The Company manages its business on a geographical basis, with six segments: Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia. The Bulgaria segment operated one general entertainment channel, BTV, and five other channels, including BTV CINEMA, BTV COMEDY, RING.BG, BTV ACTION and BTV LADY, as of December 31, 2016. The Croatia segment operated one general entertainment channel, NOVA TV (Croatia), as of December 31, 2016. The Czech Republic segment operated one general entertainment channel, TV NOVA (Czech Republic), as of December 31, 2016. The Romania segment operated one general entertainment channel, PRO TV, as of December 31, 2016. The Slovak Republic segment operated one general entertainment channel, TV MARKIZA, as of December 31, 2016.

FINANCIAL RATIOS  of  Central European Media Enterprises Cl A (CETV)

Valuation Ratios
P/E Ratio -3.7
Price to Sales 1.1
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 19.8
Price to Free Cash Flow 168.6
Growth Rates
Sales Growth Rate 5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.8%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 43
Current Ratio 0.5
LT Debt to Equity 682.3%
Total Debt to Equity 683%
Interest Coverage -2
Management Effectiveness
Return On Assets -8.7%
Ret/ On Assets - 3 Yr. Avg. -7.9%
Return On Total Capital -15.1%
Ret/ On T. Cap. - 3 Yr. Avg. -13%
Return On Equity -77.4%
Return On Equity - 3 Yr. Avg. -48.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 35.1%
Gross Margin - 3 Yr. Avg. 32.3%
EBITDA Margin 38.9%
EBITDA Margin - 3 Yr. Avg. 47.2%
Operating Margin -6.1%
Oper. Margin - 3 Yr. Avg. 3.1%
Pre-Tax Margin -27.1%
Pre-Tax Margin - 3 Yr. Avg. -22.2%
Net Profit Margin -28.2%
Net Profit Margin - 3 Yr. Avg. -26.8%
Effective Tax Rate -4.6%
Eff/ Tax Rate - 3 Yr. Avg. -0.8%
Payout Ratio 0%

CETV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CETV stock intrinsic value calculation we used $638 million for the last fiscal year's total revenue generated by Central European Media Enterprises Cl A. The default revenue input number comes from 2016 income statement of Central European Media Enterprises Cl A. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CETV stock valuation model: a) initial revenue growth rate of 4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.1%, whose default value for CETV is calculated based on our internal credit rating of Central European Media Enterprises Cl A, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Central European Media Enterprises Cl A.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CETV stock the variable cost ratio is equal to 84.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CETV stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.6% for Central European Media Enterprises Cl A.

Corporate tax rate of 27% is the nominal tax rate for Central European Media Enterprises Cl A. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CETV stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CETV are equal to 67.1%.

Life of production assets of 2.8 years is the average useful life of capital assets used in Central European Media Enterprises Cl A operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CETV is equal to 19.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $147 million for Central European Media Enterprises Cl A - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 144.845 million for Central European Media Enterprises Cl A is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Central European Media Enterprises Cl A at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Central European Media posts 2Q profit   [Jul-26-17 12:39AM  Associated Press]
▶ Company News for July 11, 2017   [10:19AM  Zacks]
▶ [$$] KKR-Backed Media Group Makes 230 Million Add-On Deal   [Jul-10-17 11:24AM  The Wall Street Journal]
▶ Central European Media reports 1Q loss   [05:01AM  Associated Press]
▶ Central European Media posts 4Q profit   [06:05AM  Associated Press]
Financial statements of CETV
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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