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TLEVISA Efficiencies Limit Pressure on Margins @Analisis Fundam

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TLEVISA Efficiencies Limit Pressure on Margins @Analisis Fundam Equity Research M exico Quarterly Report July 13, 2020 TLEVISA www.banorte.com Efficiencies limit pressure on margins @analisis_fundam ▪ Televisa confirmed a weak report, reflecting the impact of the Consumer and Telecom pandemic on Content and Other Businesses, yet highlighting a solid growth in pay TV segment (mainly Cable) Valentín Mendoza Senior Strategist, Equity [email protected] ▪ Despite a sharp drop in Advertising, pressure on profitability was less than estimated, owing to cost and expense savings in the division, Juan Barbier coupled with a decrease in corporate spending Analyst [email protected] ▪ We establish a PT2020 of $30.00, which implies a FV/EBITDA 2021E multiple of 5.8x, similar to last year's average of 5.7x. Given the Buy Current Price $23.52 attractive valuation, our rating is BUY. PT 2020 $30.00 Dividend 2020e Pay TV proved its resilience. Televisa's revenues fell 7.8% y/y to $22.407 Dividend Yield (%) Upside Potential 27.6% billion, due to a 16.3% decrease in Content (Advertising -33.1%), and a 67.0% ADR current price US$5.18 slump in Other Business; both divisions being strongly impacted by the PT2020 ADR US$6.80 # Shares per ADR 5 pandemic. However, Pay TV even accelerated its growth rate, with Cable Max – Mín LTM ($) 47.14 – 22.70 advancing 10.7% and Sky 3.1%, due to a higher demand for broad-band Market Cap (US$m)) 2,988.5 Shares Outstanding (m) 2,820.0 accesses. EBITDA fell 13.2% y/y to $8.221 billion though the respective Float 80% margin eroded 230bp to 36.7%, yet being better than expected thanks to Daily Turnover US$m 94.7 Valuation metrics LTM efficiencies in Content and Corporate expenses, which partially cushioned the FV/EBITDA 5.4x impact of lower operating leverage coming from the sharp drop in Advertising P/E N.A. revenue, pressures in Izzi from a less favorable mix and a $452 million loss in Relative performance to Mexbol Other Businesses. Net income grew 89.3% y/y to $1.739 billion, driven by LTM 50% foreign exchange gains and a lower effective tax rate. On valuation, our rating 40% is BUY. We consider that the 2020 conjuncture is already discounted in current 30% 20% valuation (-23% vs. 3Y average), representing an attractive entry point towards 10% 0% 2021. That said, in our PT Tlevisa would trade at 5.8x FV/EBITDA 2021E (vs -10% -20% 5.7x LTM average). -30% -40% jul.-19Jul.-19 Oct.oct.-19-19 ene.-20Jan.-20 Apr.abr.-20-20 Jul.jul.-20-20 MEXBOL TLEVICPO Financial Statements Valuation and Financial metrics 2018 2019 2020E 2021E 2018 2019 2020E 2021E Rev enue 101,282 101,492 96,565 96,822 EV/EBITDA 4.7x 4.8x 5.6x 5.3x Operating Income 20,253 17,209 13,990 15,889 P/E 11.3x 14.4x -10.8x 30.8x EBITDA 38,524 39,313 35,102 37,393 P/BV 0.8x 0.7x 1.0x 1.0x EBITDA Margin 38.0% 38.7% 36.4% 38.6% ROE 5.9% 4.5% -6.5% 2.5% Net Income 6,009 4,722 -6,116 2,156 Net Margin 5.9% 4.7% -6.3% 2.2% ROA 2.0% 1.6% -2.0% 0.7% EBITDA/ interest 4.0x 3.8x 3.1x 3.0x Total Assets 297,842 290,422 301,691 299,649 Net Debt/EBITDA 2.6x 2.7x 3.3x 3.1x Cash 32,068 27,452 45,762 40,243 Debt/Equity 1.3x 1.3x 1.9x 1.8x This document is provided for the reader’s convenience Total Liabilities 193,061 184,922 218,091 213,994 only. The translation from the original Spanish version was Debt 131,135 133,568 161,372 156,491 made by Banorte’s staff. Discrepancies may possibly arise Common Equity 104,781 105,500 83,600 85,655 between the original document in Spanish and its English translation. For this reason, the original research paper in Source: Banorte Spanish is the only official document. The Spanish version was released before the English translation. The original document entitled “Eficiencias limitan presión en 1 márgenes” was released on July 7, 2020. Document for distribution among public TLEVISA – Results 2Q20 Revenue & EBITDA Margin MXN, million MXN, million Diff% vs Concept 1Q19 1Q20 Var % 1Q20e Estim. Revenue 24,308 22,407 -7.8% 22,015 1.8% 30,000 40.0% 41% Operating Income 4,110 2,693 -34.5% 2,531 6.4% Ebitda 9,472 8,221 -13.2% 7,780 5.7% 39.0% 40% 25,000 38.1% Net Income 919 1,739 89.3% 343 406.6% 39% 20,000 Margins 38% 36.7% Operating Margin 16.9% 12.0% -4.9pp 11.5% 0.5pp 15,000 37% Ebitda Margin 39.0% 36.7% -2.3pp 35.3% 1.4pp 35.7% 36% Net Margin 3.8% 7.8% 4.0pp 1.6% 6.2pp 10,000 EPS $0.32 $0.62 94.0% $0.12 406.8% 35% 5,000 34% 0 33% Income Statement (Million pesos) 2Q19 3Q19 4Q19 1Q20 2Q20 Year 2019 2020 2020 Change Change Revenue EBITDA Margin Quarter 2 1 2 % y/y % q/q Net Revenue 24,308 23,229 22,407 -7.8% -3.5% Costs of goods sold 13,815 13,738 13,942 0.9% 1.5% Gross profit 10,492 9,491 8,465 -19.3% -10.8% General expenses 6,099 6,349 5,479 -10.2% -13.7% Net Income & ROE Operating Income 4,110 3,427 2,693 -34.5% -21.4% MXN, million Operating Margin 16.9% 14.8% 12.0% (4.9pp) (2.7pp) Depreciation 5,079 5,152 5,234 3.0% 1.6% EBITDA 9,472 8,293 8,221 -13.2% -0.9% 5.2% 4,000 6.0% EBITDA Margin 39.0% 35.7% 36.7% (2.3pp) 1.0pp 2.8% 2,000 2.6% 4.0% Interest Income (Expense) net (2,268) (8,708) (89) -96.1% -99.0% Interest expense 2,576 2,528 2,885 12.0% 14.1% 0 2.0% Interest income 349 224 452 29.5% 101.9% (2,000) 0.0% Other income (expense) (366) 2,198 (7) -98.1% N.A. (4,000) -2.0% Foreign exchange gain (loss) 325 (8,601) 2,351 >500% N.A. (6,000) -8.3% -4.0% Unconsolidated subsidiaries 164 (5,349) 138 -16.1% N.A. -7.0% (8,000) -6.0% Income before taxes 2,005 (10,629) 2,742 36.7% N.A. Income taxes 742 (1,726) 752 1.4% N.A. (10,000) -8.0% Discontinued operations N.A. N.A. (12,000) -10.0% Consolidated Net Income 1,263 (8,904) 1,989 57.5% N.A. 2Q19 3Q19 4Q19 1Q20 2Q20 Non-controlling interest 344 748 250 -27.4% -66.6% Net Income 919 (9,652) 1,739 89.3% N.A. Net Income ROE Net Margin 3.8% -41.6% 7.8% 4.0pp 49.3pp EPS 0.318 (3.421) 0.617 94.0% N.A. Balance Sheet (Million pesos) Total Current Assets 84,003 96,147 97,725 16.3% 1.6% Net Debt & Net Debt to EBITDA ratio Cash & Short Term Investments 37,918 44,940 45,482 19.9% 1.2% MXN, million Long Term Assets 227,497 213,316 211,917 -6.8% -0.7% Property, Plant & Equipment (Net) 82,754 83,329 82,897 0.2% -0.5% Intangible Assets (Net) 28,891 28,919 28,836 -0.2% -0.3% 200,000 3.2x 3.2x 3.5x Total Assets 311,500 309,463 309,641 -0.6% 0.1% 2.9x 2.8x Current Liabilities 52,678 51,257 55,313 5.0% 7.9% 2.7x 3.0x Short Term Debt 5,219 4,171 4,419 -15.3% 6.0% Accounts Payable 44,859 44,735 48,798 8.8% 9.1% 2.5x Long Term Liabilities 156,359 176,276 171,605 9.8% -2.6% Long Term Debt 141,718 166,448 161,798 14.2% -2.8% 2.0x Total Liabilities 209,037 227,533 226,918 8.6% -0.3% Stockholders’ Equity 102,463 81,930 82,724 -19.3% 1.0% 1.5x Non-controlling interest 14,100 15,871 16,035 13.7% 1.0% Total Equity 88,363 66,059 66,689 -24.5% 1.0% 0 1.0x Liabilities & Equity 311,500 309,463 309,641 -0.6% 0.1% 2Q19 3Q19 4Q19 1Q20 2Q20 Net Debt 109,019 125,678 120,735 10.7% -3.9% Net Debt Net Debt to EBITDA Cash Flow CF from Operating Activities 9,446.2 10,476.2 7,692.8 CF from Investing Activities (3,810.2) (4,118.8) (4,529.9) CF from Financing Activities 8,737.4 10,752.2 (2,475.5) FX effect on cash (18.3) 378.6 (146.2) Change in Cash Balance 14,355.1 17,488.3 541.3 Source: Banorte, MSE. 2 2020 Estimates According to our projection model, in light of a challenging economic scenario in 2020, Televisa's consolidated revenues would fall 4.9% year-over-year to $96.565 billion. This decline would be mainly explained by a 7.9% fall in Content sales, given the impact of the COVID-19 pandemic on Advertising sales (-22.3%e), since companies have reduced their investments in this front as an expense containment measure.
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