Intrinsic value of Salem Media Group - SALM

Previous Close

$4.25

  Intrinsic Value

$2.40

stock screener

  Rating & Target

sell

-44%

Previous close

$4.25

 
Intrinsic value

$2.40

 
Up/down potential

-44%

 
Rating

sell

We calculate the intrinsic value of SALM 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 0.1

 

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, %
  3.01
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  274
  279
  286
  293
  302
  311
  321
  332
  343
  356
  370
  384
  400
  417
  434
  453
  473
  494
  516
  540
  564
  591
  618
  647
  678
  710
  744
  780
  818
  857
  899
Variable operating expenses, $m
 
  243
  248
  255
  262
  270
  278
  288
  298
  309
  320
  330
  344
  358
  373
  389
  406
  425
  444
  464
  485
  508
  531
  556
  583
  610
  640
  670
  703
  737
  773
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
  246
  243
  248
  255
  262
  270
  278
  288
  298
  309
  320
  330
  344
  358
  373
  389
  406
  425
  444
  464
  485
  508
  531
  556
  583
  610
  640
  670
  703
  737
  773
Operating income, $m
  28
  37
  38
  39
  40
  41
  42
  44
  46
  47
  49
  54
  56
  59
  61
  64
  66
  69
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
EBITDA, $m
  45
  57
  58
  59
  61
  63
  65
  67
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
  165
  173
  182
Interest expense (income), $m
  14
  14
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  22
  23
  24
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
Earnings before tax, $m
  13
  23
  24
  24
  25
  25
  26
  27
  28
  29
  30
  34
  35
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
Tax expense, $m
  4
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
Net income, $m
  9
  17
  17
  18
  18
  19
  19
  20
  20
  21
  22
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  590
  602
  616
  632
  650
  669
  691
  715
  740
  768
  797
  829
  862
  898
  936
  976
  1,019
  1,064
  1,112
  1,163
  1,216
  1,273
  1,332
  1,395
  1,461
  1,531
  1,604
  1,681
  1,762
  1,847
  1,937
Adjusted assets (=assets-cash), $m
  590
  602
  616
  632
  650
  669
  691
  715
  740
  768
  797
  829
  862
  898
  936
  976
  1,019
  1,064
  1,112
  1,163
  1,216
  1,273
  1,332
  1,395
  1,461
  1,531
  1,604
  1,681
  1,762
  1,847
  1,937
Revenue / Adjusted assets
  0.464
  0.463
  0.464
  0.464
  0.465
  0.465
  0.465
  0.464
  0.464
  0.464
  0.464
  0.463
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
  0.464
Average production assets, $m
  509
  519
  531
  544
  560
  577
  595
  615
  637
  661
  686
  714
  742
  773
  806
  841
  878
  917
  958
  1,002
  1,048
  1,096
  1,147
  1,201
  1,258
  1,318
  1,381
  1,448
  1,517
  1,591
  1,668
Working capital, $m
  17
  18
  19
  19
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  57
  59
Total debt, $m
  262
  270
  279
  289
  300
  312
  326
  341
  357
  375
  394
  414
  435
  458
  482
  508
  535
  564
  595
  627
  661
  697
  735
  775
  817
  861
  908
  957
  1,008
  1,063
  1,120
Total liabilities, $m
  376
  384
  393
  403
  414
  426
  440
  455
  471
  489
  508
  528
  549
  572
  596
  622
  649
  678
  709
  741
  775
  811
  849
  889
  931
  975
  1,022
  1,071
  1,122
  1,177
  1,234
Total equity, $m
  214
  219
  224
  229
  236
  243
  251
  259
  269
  279
  289
  301
  313
  326
  340
  354
  370
  386
  404
  422
  442
  462
  484
  506
  530
  556
  582
  610
  640
  671
  703
Total liabilities and equity, $m
  590
  603
  617
  632
  650
  669
  691
  714
  740
  768
  797
  829
  862
  898
  936
  976
  1,019
  1,064
  1,113
  1,163
  1,217
  1,273
  1,333
  1,395
  1,461
  1,531
  1,604
  1,681
  1,762
  1,848
  1,937
Debt-to-equity ratio
  1.224
  1.230
  1.250
  1.260
  1.270
  1.290
  1.300
  1.320
  1.330
  1.350
  1.360
  1.380
  1.390
  1.410
  1.420
  1.430
  1.450
  1.460
  1.470
  1.480
  1.500
  1.510
  1.520
  1.530
  1.540
  1.550
  1.560
  1.570
  1.580
  1.580
  1.590
Adjusted equity ratio
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9
  17
  17
  18
  18
  19
  19
  20
  20
  21
  22
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
Depreciation, amort., depletion, $m
  17
  20
  20
  21
  21
  22
  22
  23
  24
  25
  25
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  56
Funds from operations, $m
  40
  37
  37
  38
  39
  40
  42
  43
  44
  46
  47
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  94
  98
  103
  107
Change in working capital, $m
  1
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
Cash from operations, $m
  39
  36
  37
  38
  39
  40
  41
  42
  43
  45
  46
  47
  49
  51
  53
  55
  57
  60
  62
  65
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  105
Maintenance CAPEX, $m
  0
  -17
  -17
  -18
  -18
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
New CAPEX, $m
  -10
  -10
  -12
  -14
  -15
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -73
  -77
Cash from investing activities, $m
  -15
  -27
  -29
  -32
  -33
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -76
  -79
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -118
  -124
  -130
Free cash flow, $m
  24
  9
  8
  7
  5
  4
  3
  2
  1
  0
  -1
  -3
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -26
Issuance/(repayment) of debt, $m
  -14
  8
  9
  10
  11
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
Issuance/(repurchase) of shares, $m
  1
  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  
  -16
  8
  9
  10
  11
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
Total cash flow (excl. dividends), $m
  7
  17
  17
  17
  17
  17
  17
  17
  17
  17
  18
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  32
Retained Cash Flow (-), $m
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
Prev. year cash balance distribution, $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 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
 
  12
  12
  11
  10
  10
  9
  8
  8
  7
  7
  6
  6
  5
  5
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  0
  0
  0
  -1
  -1
Discount rate, %
 
  8.90
  9.35
  9.81
  10.30
  10.82
  11.36
  11.93
  12.52
  13.15
  13.81
  14.50
  15.22
  15.98
  16.78
  17.62
  18.50
  19.43
  20.40
  21.42
  22.49
  23.61
  24.80
  26.03
  27.34
  28.70
  30.14
  31.65
  33.23
  34.89
  36.63
PV of cash for distribution, $m
 
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
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Salem Media Group, Inc., formerly Salem Communications Corporation, is a multi-media company specializing in Christian and Conservative content, with media properties consisting of radio broadcasting, digital media, and book, magazine and newsletter publishing. The Company operates through three segments: Broadcast, Digital Media and Publishing. The Company's broadcasting segment is engaged in the ownership and operation of radio stations in metropolitan markets. The Company's radio stations carry national and local programming content, as well as national and local advertisers. The Company's Digital Media segment focuses on Web-based platform designed for audiences interested in Christian and family-themed content and conservative news. The Company's publishing segment consists of Regnery Publishing, Xulon Press and Salem Publishing. The Company owns and operates approximately 116 radio stations in over 40 markets.

FINANCIAL RATIOS  of  Salem Media Group (SALM)

Valuation Ratios
P/E Ratio 12.2
Price to Sales 0.4
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 2.8
Price to Free Cash Flow 3.8
Growth Rates
Sales Growth Rate 3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.7%
Cap. Spend. - 3 Yr. Gr. Rate -1.9%
Financial Strength
Quick Ratio 0
Current Ratio 0.3
LT Debt to Equity 122%
Total Debt to Equity 122.4%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 2.9%
Return On Total Capital 1.9%
Ret/ On T. Cap. - 3 Yr. Avg. 1.7%
Return On Equity 4.2%
Return On Equity - 3 Yr. Avg. 4%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 24.1%
Gross Margin - 3 Yr. Avg. 24.4%
EBITDA Margin 16.1%
EBITDA Margin - 3 Yr. Avg. 17.1%
Operating Margin 10.2%
Oper. Margin - 3 Yr. Avg. 11.4%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 5.1%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 3.1%
Effective Tax Rate 30.8%
Eff/ Tax Rate - 3 Yr. Avg. 39.9%
Payout Ratio 77.8%

SALM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SALM stock intrinsic value calculation we used $274 million for the last fiscal year's total revenue generated by Salem Media Group. The default revenue input number comes from 2016 income statement of Salem Media Group. 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 SALM stock valuation model: a) initial revenue growth rate of 2% 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 8.9%, whose default value for SALM is calculated based on our internal credit rating of Salem Media Group, 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 Salem Media Group.
    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 SALM stock the variable cost ratio is equal to 86.9%.

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 SALM 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 5.2% for Salem Media Group.

Corporate tax rate of 27% is the nominal tax rate for Salem Media Group. 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 SALM 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 SALM are equal to 185.6%.

Life of production assets of 31.4 years is the average useful life of capital assets used in Salem Media Group 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 SALM is equal to 6.6%. 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 - $214 million for Salem Media Group - 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 26.12 million for Salem Media Group 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 Salem Media Group at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Salem Media Group Announces Quarterly Cash Distribution   [Dec-07-17 07:00PM  Business Wire]
▶ Salem Communications posts 3Q loss   [Nov-07-17 05:13PM  Associated Press]
▶ Hernandes Union The Preachers Kid Joins Praise 95.1   [Oct-30-17 08:00AM  Business Wire]
▶ Salem Media Group Announces Quarterly Cash Distribution   [Sep-12-17 12:30PM  Business Wire]
▶ Salem Communications posts 2Q profit   [Aug-08-17 12:00AM  Associated Press]
▶ REPEAT/Gabelli & Companys Broadcasting Symposium   [Aug-02-17 07:00AM  Business Wire]
▶ Gabelli & Companys Broadcasting Symposium   [Jul-20-17 07:00AM  Business Wire]
▶ Salem Media Group Announces Acquisition of TradersCrux   [Jul-13-17 09:00AM  Business Wire]
▶ Salem Media Group to Broadcast from the White House   [Jul-12-17 06:00AM  Business Wire]
▶ Salem Media Group Certified as a Great Place to Work   [Jul-03-17 09:00AM  Business Wire]
▶ Salem Media Group Announces Quarterly Cash Distribution   [Jun-01-17 12:00PM  Business Wire]
▶ Salem Communications posts 1Q profit   [07:40AM  Associated Press]
▶ Salem Communications posts 4Q profit   [04:46PM  Associated Press]
▶ Salem Radio Network to Launch The Joe Walsh Show   [Feb-08-17 12:00PM  Business Wire]
▶ LD Micro Index Reconstitution as of February 1, 2017   [Feb-01-17 09:45AM  Accesswire]
▶ Salem Media Group to Present at NobleCon13   [Jan-26-17 04:19PM  Business Wire]
▶ Salem Web Network Acquires ChristianConcertAlerts.com   [Jan-18-17 09:00AM  Business Wire]
▶ Is Salem Media Group Inc (SALM) A Good Stock To Buy?   [Dec-17-16 03:40PM  at Insider Monkey]
▶ Salem Media Group Announces Quarterly Cash Distribution   [Dec-07-16 09:00AM  Business Wire]
Financial statements of SALM
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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