Aug 29, 2008 - The Score's new studio. Story about expansion of The Score, Canada's smallest sports channel. __Photo: Charla Jones/Globe and MailThe Globe and Mail
Canadian investors are running low on television broadcasting stocks to tune into.
In recent years, nearly every significant broadcast property in the country, other than Corus Entertainment Inc., has been gobbled up in consolidation moves by telecommunications behemoths such as BCE Inc. and Rogers Communications Inc. Astral Media is poised to vanish as a publicly traded television broadcasting company, courtesy of its pending acquisition by BCE. Corus is regularly touted as the next logical takeover target in the sector, so its days might be numbered, too.
Most of what's left on the Canadian market as pure-play broadcasters can be best described as corporate crumbs.
But sometimes even tiny morsels can make tasty investments, such as little-known specialty broadcasters Asian Television Network International Ltd. and Score Media Inc. There's also Quebec-focused TVA Group Inc., larger in size, but which has a depressed share price that may present a good buying opportunity.
If and when Corus goes, this trio of relatively obscure TV names could represent some of the only good bets for capital gains in the sector.
One fan of the three companies is Stephen Takacsy, chief investment officer at Lester Asset Management, a Montreal-based investment manager that's taken a position in them all.
TVA is controlled by the wealthy Péladeau family, and holds Quebec-focused television broadcasting and magazine assets. Mr. Takacsy contends the stock is "probably the cheapest broadcaster in North America."
Quebec companies typically trade at a discount because investors are wary of the province's political risk. Still, TVA has attracted well-known value investors, such as money manager Jarislowsky Fraser Ltd., which owns 22 per cent, the largest holding other than those affiliated with the Péladeaus.
TVA's depressed price may discount even the worst-case situation in Quebec. The company's price-to-earnings ratio is only about 8 times last year's profits, far below the S&P/TSX composite index average of 14 times.
TVA's stock is depressed because the company is setting up two cash-draining new ventures: A sports network and Sun News, a conservative-focused network. The sports network is expected to be a money spinner in short order, but the jury is still out on how long it will take Sun News to be profitable. In the meantime, TVA eliminated its dividend last year, which also hurt stock support.
"The company is extremely profitable but those two new initiatives are obviously losing money," says Mr. Takacsy, who believes TVA will eventually be taken private by the Péladeaus at higher prices. Major institutional holders "probably wouldn't want to sell anywhere near down at these levels because everybody knows that … the shares are worth a hell of a lot more."
Score Media is a quirky cable sports specialty network that caters to hard-core sport fanatics. While the major sports networks focus mostly on live events, Score offers a small number of games as a sideline, focusing instead on sports data, talking-head discussions and game highlights. Score also has one of the world's most popular downloadable sports apps for mobile devices.
Score could eventually be a takeout candidate too. Shaw Communications Inc. is touted as the most likely buyer, because Shaw lacks a sports specialty offering.
One of the few analysts who follow Score is Scott Rattee at Stonecap Securities, who was intrigued by the company because it is one of the few market plays providing relatively large exposure to the growing popularity of mobile sports apps.
"If the apps really do start to take off, they really have a growth story emerging on top of an incredibly profitable and well-run cable television business," Mr. Rattee says.
He has a $1.15 target on the stock, modestly above the current market price, and a sector-perform rating. One risk for the company, ranked No. 3 in North America for the number of people using its apps, is that it gets overtaken by rivals. That makes Mr. Rattee cautious over the near term. Another difficulty is Score's small float of stock outstanding, making it hard to trade.
But Mr. Takacsy contends Score's stock price is trading for less than the value its sports network would fetch in a buyout, and doesn't reflect any value for the apps, so there could be significant upside.
Asian Television also has allure. It runs specialty channels for an attractive demographic, Canada's surging Asian population.
The company has begun paying a dividend and has some of the most rapid revenue and earnings growth in the industry. Revenue jumped to $28-million last year from $16-million in the year ending Dec. 31, 2009. Over the same period, earnings rose to 22 cents a share from 5 cents.
Mr. Takacsy says both Score and Asian Television will eventually follow Astral and be snapped up by a bigger competitor. Operators of specialty channels "eventually get sold for a lot of money down the road. I've never seen it not happen."