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ATRESMEDIA: VIRTUAL MEETING WITH INVESTORS (ANÁLISIS BANCO SABADELL)

Highlights from the virtual investor meeting with the CFO:
 Advertising market: The market would have fallen by around -4% in October vs. Mediaset España’s message from last week hinting at a flat market performance (for its company). The difference would be the advertising campaigns focused on children’s products, which have a positive impact on Mediaset but not on A3M (as the latter does not have a children’s channel). Although there is still very little visibility, the company expects November’s market performance to be in line with October’s, meaning that as of the end of 4Q’20, performance would stand slightly above levels of -10% previously expected (and vs. -15.4% BS(e)), with a drop of more than -20% (vs. -22.1% BS(e)). Therefore, if the company’s estimate is fulfilled, we would have leeway to raise our estimates.
 Limitation on online betting advertising: The biggest impact will be felt by Pay-TV channels (with sports), sports radio and, to a lesser extent, free-to-air TV. Thus, A3M does not expect a significant impact, as it does not currently have substantial exposure to sports (and therefore it does not have advertising from this sector).
 Cost cutting: The company maintains its message of flexibility, claiming that it might increase cost savings if the market performed below their expectations. Some of the cost savings made in 2020 are temporary (such as the reruns that took place in 2Q’20), but other will be consolidated (changes in the afternoon’s programming).
 Sanction from the CNMC: The company is persuaded that it will win the lawsuit, and thus, it will not set aside this amount. It only has to present a guarantee that will have an impact on debt levels (already included in our estimates). However, the company expects the legal process to continue for 3 or 4 years.
 Diversification: The company continues to work on establishing new sources of revenues to offset the recent “structural” drop in the TV advertising market. In this regard, in addition to content sales to third-parties (the company expects to achieve cruising speed in 3 or 4 years’ time following its agreement with Telefónica of ~10 series/year vs. 4 series/year currently), the company continues to focus on hybrid advertising, taking advantage of the growing penetration levels of Smart TV (access penetration would stand at levels somewhat above ~10%, 4 M TV sets out of a total of 38 M in Spain).
 M&A in the sector: The company believes it is a very local market, although due to the greater (and growing) importance of online advertising revenues, it sees the logic in agreements made to increase volumes and share costs.
MARKET IMPACT
The messages are in line with the company’s continuing strategy, and they reinforce our view: the diversification and cost control offset the structural weakness in consumption/audience levels and the migration towards online media, and current valuation levels are frankly quite attractive, with FCF’21e above 15%.