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ATRESMEDIA: 9M'19 RESULTS AND T.P. CUT (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results
Sales: € 183.77 M (-6.7% vs. -6.1% BS(e));
EBITDA: € 22.66 M (-0.6% vs. -7.9% BS(e));
EBIT: € 17.85 M (-3.4% vs. -13.4% BS(e));
Net Profit: € 10.75 M (-36.0% vs. -22.6% BS(e));
9M'19 vs. 9M'18 Results
Sales: € 723.67 M (-3.2% vs. -3.0% BS(e));
EBITDA: € 126.36 M (+1.9% vs. +0.6% BS(e));
EBIT: € 111.75 M (+1.5% vs. -0.2% BS(e));
Net Profit: € 80.25 M (-6.7% vs. -4.1% BS(e));

Results in line with our expectations, emphasising the weakness (more than expected) of TV advertising revenues (accounting for 77% of the total, with a -6.0% drop in 9M’19 vs. -6.3% for the market), offset by the solid cost management (9M’19 OPEX -4.2% vs. -3.8% BS(e)). Thus, total 9M’19 sales fell -3.2% (-6.7% in 3Q’19 vs. -6.1% BS(e)), dragged down, as we have stated, by TV advertising revenues, and with growth in digital advertising (+8.1% vs. +6% BS(e)), content distribution (+5.1% vs. +6.8% BS(e)), others (+28.3% vs. +30.9% BS(e)) and Radio (+0.6% vs. +2.4% BS(e)). The 9M’19 EBITDA came in at € 126.4 M (+1.9% vs. +0.6% BS(e)), with a margin of 17.5% (vs. 16.6% in 9M’18) thanks to the aforementioned cost cutting.
Although the results may be well received today (given the stock’s poor performance in 2019: -18% in absolute terms and -28% vs. the IBEX, despite the +10% rise in absolute terms over the past 2 months), and bearing in mind the current dividend yield (~13%), we reiterate our cautious stance on the stock, as we believe that the risks are becoming more and more influential on sector perception due to the weakness and lack of visibility on the TV advertising market. Added to a worsening macroeconomic situation is the gradual drop in audience figures (lower consumption), along with the proliferation of digital media and OTT platforms (despite being based on a subscription model, they are stealing audience share little by little). We welcome the measures taken with a view to diversification (A3M Studios and the JV with Telefónica), as well as the flexibility shown in cost control, but we do not think this will be enough to offset the falling traditional advertising revenues (77% of the total).
We have lowered our estimates in order to include a more negative TV advertising scenario and the stronger cost control shown by the company to adapt to the greater deterioration in the market (more details on the next few pages). With this in mind, we cut our sales’19 estimate by -2.3%, leaving the cost base at € 832 M (-2.7% vs. € 855 M previously), meaning we are below the € 845 M included in the current guidance (which we do not rule out being revised in the short term, to the level necessary to keep EBITDA at 2018 levels, which would already be priced in to our new estimates).
We cut our T.P. to € 3.60/sh. (-20% vs. the previous T.P.) as a result of the mentioned cut to estimates, and after rolling our model over to 2020. We value the company by DCF method with a WACC of 8.0% and a g of -1%, which would include the weak TV advertising market. SELL. T.P. € 3.60/sh. (potential -2.7%).