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New Russias CTC Media examined
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New Russias CTC Media examined - 18-July-2008, 13:50

Russias CTC Media examined

Recently Anton Kudryashov was appointed CEO of CTC Media, Russias leading quoted and independent free TV group in Russia. CTC has also just borrowed $135m of fresh financing. A report from Morgan Stanley looks closely at the business ahead of its latest results, due on July 29.
The banks study lowers the target valuation for the broadcaster. We expect management will re-iterate FY guidance of $270-312m EBITDA (Morgan Stanleys core est. $278m). It is also a chance for the incoming CEO to discuss diversifying the business into a vertically integrated media holding company, says the bank, which at the same time has cut its forecasts for the broadcaster.

Morgan Stanley bases its view on three factors.

(a) Forecasts. Our 2010 EBITDA forecast is 10% below consensus.

(b) Momentum slowing - we forecast EPS growth to slow to 23% 08-10 and 9% 10-12 as almost every key metric decelerates (advertising, TV share, audience, margins). Rising fragmentation and competition may lead to higher investment and lower returns for the core business.

(c) Growing risks - We believe CTC's risk profile is deteriorating due to cyclical (advertising) and structural (fragmentation, investment) factors. The returns profile for the $475m of recent acquisitions is also uncertain.

We expect momentum will slow markedly, adds the banks report. After 40%pa growth 2001-08, we expect the TV ad market will mature to +12% pa 2008-12 and its share of total advertising plateau at 56% (43% in 04). Facing greater competition from state and small channels, we expect CTCs share to stagnate at 11.4% of audience (ex DTV) limiting growth. We expect high programme cost and general opex inflation to lower group EBITDA margins from 47% to 41% by 2012, leaving EPS CAGR of 9% 2010-12.

Alexander Rodnyansk, the charismatic previous boss at CTC remains as the Company's President and stays on its Board of Directors.
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