Monday, January 9, 2017

Glacier's Stock Price is Ice Cold

Glacier Media (GVC) is a Canadian company that appears to be very cheap. Historically, the company delivers free newspapers with ultra local content, relying on local advertisers to generate revenue. As you can imagine, this is a business in serious decline, and so the company has been left for dead by investors.

But Glacier has managed to pivot some of its content into data companies that offer business-to-business subscription and other services, some of which appear to have competitive advantages. The company runs agricultural trade-shows, provides site-specific weather consulting, offers databases of energy assets, has a real-estate portal etc.

All together, about 45% of the company's IFRS revenue (i.e. revenue excluding joint ventures, which includes both newspapers and non-newspapers) comes from business information services, with the rest coming from newspapers. As the business information segment continues to grow, while newspaper revenue continues to fall, I would expect this more "moaty" segment to exert a larger and larger impact on the company's overall revenue, which fell only 2% year-over-year last quarter.

Glacier trades for $90 million and has debt of $52 million. The company also has a tax dispute with the government; in the interest of being conservative, I'll assume they lose in court (though they may not, which would add a big windfall to this analysis) and add the $25 million tab to the enterprise value for a total of $167 million.

Adjusted EBITDA over the last twelve months is about $33 million, for an EV/EBITDA multiple of 5.

Normally, I don't like to use EBITDA, let alone adjusted EBITDA, because a lot of recurring expenses can be hidden in both the "adjusted" as well as the "DA" part of EBITDA. But in this case I think it's the most relevant metric:

1) "Adjusted" is useful because it mostly incorporates the company's share from its joint ventures, which is a significant source of the company's earnings.

2) "EBITDA" is also more relevant in this case because there is a large mismatch between capex needs and depreciation expenses. Management recognizes that the newspaper business is not a great business going forward, and at last update suggested that capex needs appear to be only $5-6 million. (From a capital allocation perspective, also note that value investor Tim McElvaine sits on this company's board and has been a buyer of the company's shares this year).

Putting it altogether results in a pro-forma EV/EBIT of 6, whereas almost half of the company's revenue is from businesses that have moat-like features and high growth. These are also spread out across a number of different types of businesses, increasing the chance that one may hit it out of the park some day. (Just for giggles, the EV/EBIT goes to 4 if you assume the company wins the tax lawsuit!)

Disclosure: Author has a long position in shares of GVC.TO

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