Introduction
Tribune Publishing (TPUB) is an underfollowed publishing company that was spun off by Tribune Media
on 4th August 2014.
TPUB owns several daily newspapers assets in 8 geographical locations. In addition, it owns several
digital properties.
Source: 2014 Wells Fargo Technology, Media and Telecom Conference
In addition, in each of the locations that TPUB operates in, it is ranked #1, with exceptions being Newport
News, VA and Allentown, PA. This is critical information as it is important to be a market leader as it
directs advertisement flows and customer usages in a self-reinforcing manner.
Source: 2014 Wells Fargo Technology, Media and Telecom Conference
At $23.06 today, TPUB is a screaming buy with a 141% upside potential.
Multiples
Currently trading at 5.6x 2014E AEV/EBITDAL, TPUB trades at a discount to closest comparable New
York Times
TPUB Capitalization
Share Price @ 21 Dec 2014 $23.06
Diluted Share Outstanding
25.4
(In Million)
Market Capitalization
$585.72
(-) Cash & Equivalents
$59.60
(+) Debt
$347.40
(+) Minority Interest
$0.00
Enterprise Value
$873.52
(+) Capitalized Operating
$208.54
Leases
Adjusted EV*
$1,082.06
2014E EBITDA
$185.30
(+) Capitalized Net Leases
$9.33
Expenses
2014E EBITDAL
$194.63
AEV/EBITDAL
5.56
NYT Capitalization
Share Price @ 21 Dec 2014 $13.27
Diluted Share Outstanding
153.5
(In Million)
Market Capitalization
$2,036.95
(-) Cash & Equivalents
$786.50
(+) Debt
$669.40
(+) Minority Interest
$3.70
Enterprise Value
$1,923.55
(+) Capitalized Operating
$33.83
Leases
Adjusted EV*
$1,957.38
2014E EBITDA
$239.82
(+) Capitalized Net Leases
$7.64
Expenses
2014E EBITDAL
$247.46
AEV/EBITDAL
7.91
*Using Damodaran’s synthetic rating estimation
I believe the reason to the discount is a result of non-fundamental selling, a result of being spun off by
Tribune Media. Going forward, I believe this multiple would close.
Margins
As a result of being a small subsidiary of Tribune Media, TPUB has historically operated rather
inefficiently. Going forward, management have stated plans to cut cost and make things more efficient. An
example of this was the plan management have to follow through with a high priority $0 budget exercise.
1) Management Compensation
With the spinoff, management are now compensated on the performance of the company rather
than the performance of the parent. I believe this is a catalyst for a more efficient company as
management move to cut unnecessary costs and spur growth, contributing to margin expansion.
2) Decentralizing Operation
In the past, TPUB key decision makers operate out of the New York headquarters. This does not
make sense to me considering TPUB operations are geographically apart. This led to a poor
decision making process and thus margin.
Since the spinoff, management has moved quickly to decentralize operation by installing local
‘CEOs’ by geography. Local CEOs are compensated based on performance metrics. As I believe
that the company is inefficient due to geographical limitations, by installing local CEOs
compensated on performance, the company would be able to eliminate non-revenue impact
costs.
3) Digital Monetization
Due to the bankruptcy of Tribune Media between 2008 to 2012, investments into the much
needed TPUB digital platforms grounded to a halt. Going forward, management have plans to
continue to expand TPUB digital platform and acquiring subscribers.
The upside of this is massive. The New York Times have paid Sunday circulation of 1.25 million
physical newspapers and 800 thousand digital only subscribers. In contrast to TPUB, collectively,
TPUB has over 2 million paid Sunday circulation but only 50 thousand digital only subscribers.
Management have plans to continue investing in digital customer acquisition and mimic New
York Times metrics, at least directionally.
This would lead to higher margins.
Collectively with these three drivers, management have plans to improve margins similar to that of the
New York Times. New York Times 2014E EBITDAL margin is 15.6% while TPUB 2014E EBITDAL margin
is 11.4%. Going forward, I believe that this margin delta would compress.
TPUB 2014E Est. Multiple
Revenue
EBITDAL
EBITDAL Margin
$1,703.76
$194.63
11.4%
NYT 2014E Est. Multiple
Revenue
EBITDAL
EBITDAL Margin
$1,582.22
$247.46
15.6%
Capital Allocation
Interestingly, in the Southwest IDEAS Investor Conference 2014 and the 2014 Wells Fargo Technology,
Media and Telecom Conference, management said something very interesting. “We will not horde cash”.
After debt repayment and strategic acquisition, management plans to pay out the remaining cash
balances as a dividend. On November 17 2014, TPUB paid it very first dividend of 17.5c per share.
One of TPUB planned uses of cash is to do bolt-on acquisition. Due to the geographical diversity of TPUB
operations, the acquisition quantity available is substantial.
Source: 2014 Wells Fargo Technology, Media and Telecom Conference
The synergies of doing bolt-on acquisition for a newspaper publisher such as TPUB are substantial. The
company would be able to consolidate distribution network, leverage on existing sales force, cut down on
duplicative back office headcount and most importantly, cut down on expensive excess production
capacity.
TPUB is currently acquiring other newspaper companies at 3-4x pre-synergies EBITDA, 2x post-synergies
EBITDA.
Considering the current market penetration rate, these strategic acquisition/rollup strategies have a long
growth runway.
With a much superior capital allocation strategy as compared to the New York Times, I believe TPUB
should trade at a nice premium.
Valuation
Very rarely do I use a closest comparable relative valuation methodology in my valuation but for the case
of TPUB, I believe it to be appropriate. This is because I believe TPUB current price level was an effect of
non-fundamental selling.
TPUB Valuation
AEV/EBITDAL
Premium/(Discount) to NYT
Est. AEV/EBITDAL
Bull
Base
Bear
Super Bear
7.91
15.0%
9.10
7.91
5.0%
8.31
7.91
-30.0%
5.54
7.91
-50.0%
3.95
Delta
Compression/(Expansion)
100%
50%
0%
-50%
EBITDAL Margin
EBITDAL
15.6%
$266.47
13.5%
$230.55
11.4%
$194.63
9.3%
$158.71
Implied AEV
(-) Capitalized Operating
Leases
Enterprise Value
(-) Minority Interest
(-) Debt
(+) Cash
$2,423.89
$1,914.80
$1,077.65
$627.69
$208.54
$208.54
$208.54
$208.54
$2,215.35
$0.00
$347.40
$59.60
$1,706.26
$0.00
$347.40
$59.60
$869.11
$0.00
$347.40
$59.60
$419.15
$0.00
$347.40
$59.60
$1,927.55
$1,418.46
$581.31
$131.35
25.4
25.4
25.4
25.4
$75.89
227%
$55.84
141%
$22.89
-1%
$5.17
-78%
Implied Market Capitalization
Diluted Share Outstanding
(In Million)
Intrinsic Value
Upside/(Downside)
With a bear case that still yield a 51% upside to current prices, I believe TPUB to be an attractive long
opportunity.
I believe that TPUB should be worth a premium as compared to NYT because TPUB has a natural
advantage on a capital allocation front due to geographical diversity and lower penetration rates.
Considering that TPUB management is conservative (Pre-spin, the company estimated LTM EBITDA at
~14% lower than true economics), margins should at least be directionally accurate. I think a 50% delta
compression is a very reasonable estimate.
With these assumptions, TPUB is worth $55.84 per share, or 141% upside to current prices.