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MEDIASET ESPAÑA: 2Q’20 RESULTS AND CHANGE OF RECOMMENDATION TO BUY (ANÁLISIS BANCO SABADELL)

2Q'20 vs 2Q'19 Results
Sales: € 145.3 M (-43.3% vs. -42.9% BS(e) and -44.8% consensus);
EBITDA: € 32.3 M (-65.2% vs. -63.0% BS(e) and -75.3% consensus);
EBIT: € 27.1 M (-69.1% vs. -66.7% BS(e) and -79.8% consensus);
Net Profit: € 21.1 M (-71.6% vs. -70.1% BS(e) and -80.2% consensus);
1H'20 vs 1H'19 Results
Sales: € 375.1 M (-22.3% vs. -22.0% BS(e) and -23.0% consensus);
EBITDA: € 99.6 M (-38.9% vs. -37.7% BS(e) and -44.7% consensus);
EBIT: € 88.9 M (-42.4% vs. -41.0% BS(e) and -48.5% consensus);
Net Profit: € 70.0 M (-45.1% vs. -44.2% BS(e) and -50.1% consensus);

The company’s 2Q’20 results came in better than expected by the consensus and slightly below our estimates. 2Q’20 sales dropped by -43.3% (vs. 42.9% BS(e)), with Mediaset Media’s revenues decreasing by -50.5% (vs. -49.2% BS(e)) and a market share of 43.3% as of 1H’20 or +0.15pp vs. 1H’19. As expected, good performance in other revenues, with sales hitting levels of € 25.8 M (+43.3% vs. 2Q’19 and vs. € 26.5 M BS(e)) thanks to sales to third-parties (Mediterráneo has sold 6 fiction series to Netflix and Amazon Prime) and to MiTele Plus (with 163,000 subscribers, of which ~100,000 would have subscribed to football content) despite lower revenues in cinema. Opex was reduced by -31% in 2Q’20 (vs. -31.6% BS(e)), bringing 2Q’20 EBITDA to € 32.3 M (-65.2%), with the margin coming in at 22.2% (vs. 36.1% in 2Q’19), very much in line with our estimates but above those of the consensus.
Following the stock’s recent poor performance (-46.5% in absolute terms and -15.9% vs. Ibex since February’s Ibex highs, when the impact from Covid-19 began to be felt and -18% vs. IBEX from March’s lows to yesterday’s closing price), we expect a positive market reaction, not only because these quarterly results beat the consensus estimates but also because the expected revenues from other business lines in 2020 (€ 100 M vs. € 71.8 M BS(e)) reduce the dependence on TV advertising (although it will continue to be highly relevant: ~87%).
We change our recommendation to BUY (since we placed our SELL recommendation in February’19, the stock has fallen by -37% vs. Ibex35), as following the stock’s poor performance, the upside potential begins to be attractive (+41.2%) and, in addition to the higher revenues expected by TL5 previously mentioned, we see greater capacity to reduce costs. The main uncertainties weighing on the stock continue to be a weak advertising market (we expect a -19.9% drop in 2020 vs. -27.9% in 1H’20, which means a -8% drop in 2H’20, vs. flat or slightly negative levels in July’20 and August’20) and the conditions of the future merger after the suspension of the plans announced last year due to Vivendi’s claims. The main risk we see in this regard is that a new merger is studied that could penalise TL5’s minority shareholders, but we cannot rule out that the new project has favourable terms as regards synergies. Meanwhile, the company’s FCF yield stands at ~17%. Target Price: € 3.80/sh (upside 40.85%)