Saga Communications (SGA): Quote / Chart TTM P/E 7.86; Current year forward P/E (FY 2010): 6.74; Next full year forward P/E (FY2011) 5.94; Dividend yield: 0.00%. Based on the September 17, 2010 closing price of $19.41.
Saga Communications (SGA) is headquartered in Grosse Pointe Farms, Michigan. Saga owns or operates 61 FM and 30 AM radios stations, 3 state radio networks, 2 farm radio networks, 5 television stations and 4 low power television stations in 26 markets. Saga’s strategy is to acquire and operate top billing broadcast stations within mid-sized markets. Their radio stations have a variety of programming formats and their television stations are affiliated with ABC, CBS, FOX, NBC, Telemundo and Univision.
During 2009 they reported a full year net loss of ($3.742) million, or a loss of ($0.61) per diluted share, compared to reported net loss of ($99.014) million, or a loss of ($14.05) per diluted share for 2008 and reported net income of $18.694 million, or $2.19 per diluted share, for 2007.
They reported 2Q 2010 net income of $3.695 million or $0.87 per diluted share compared to a net income of $2.674 million or $0.63 per diluted share in 2Q 2009. During the first six months of 2010 they reported net income of $7.012 million, or $1.66 per diluted share compared to a net income of $2.312 million or $0.55 per diluted share for the first six months in 2009.
The large earnings loss Saga seen in 2008 was almost entirely due to impairment charges taken on valuation decreases of broadcast licenses and Goodwill, so these losses were non cash losses and they resulted in a large income tax credit of $32.522 million net after the current year tax. Similarly in 2009, although they had actual earnings losses, these loses were increased further by additional impairment charges on their broadcast licenses and resulted in an income tax credit of $1.161 million.
They missed earnings estimates in their last report by $0.05 however earnings were significantly better than the quarter a year ago and the best quarterly reported earnings since Q2 2004. About 85% of Saga’s revenue comes from advertisements. Saga had seen significant decreases in revenues due to decreases in advertisement spending starting in the last quarter of 2008 and continuing through the first three quarters of 2009, but has seen revenues begin to rebound since. Many of the other broadcasting and media providers were seeing the same reductions during the same time periods. The earnings reports that I’ve looked at of other’s that are dependent on advertising income are showing significant increases in advertising revenues during the past two or more quarters. Although Saga remains cautious in their statements on earnings, their earnings are increasing significantly. Others within these industries are slightly less cautious in their earnings statements, and believe the advertising increases will continue.
Debt: As of December 31, 2009 the total long-term debt obligation was $ 121.078 million. Maturities of long-term debt for fiscal years 2010 is $17.078 million, 2011 is $10.000 million, 2012 is $94.000 million, with no long-term debt coming due thereafter. As of June 30, 2010 the balance owed was $113.578 million, and is expected to total about $93 million in a year from now, however the remaining balance at that time will be due in slightly over a year.
Saga amended their current credit agreement in February 2010. The agreement calls for payments of $2.5 million per quarter along with 75% of the company’s free cash flow, estimated at $6.2 million for the period ending June 30, 2011, with the unpaid balance due on July 29, 2012. The restructuring was made to reduce the amount of the loan’s cap and to reduce the cap by the $2.5 million payment per quarter, and thereby reducing the interest charged on the unused portion of the cap amount. Saga currently has enough cash or cash equivalents to make the $2.5 million quarterly payments through the end of 2011.
Considering current cash levels, past debt repayment and the amounts of interest savings they have seen over the past two years on their debt, it’s likely they will have paid this debt down considerably by the time it is due, but it is also fairly likely a portion of this balance will need to be restructured when it comes due. I don’t feel they will have any problem restructuring this debt if they need too, and I don’t feel the debt is at a level to be concerned about.
The debt above is what remains from borrowings made for several acquisitions the company made during 2007 and 2008. The company continues to look for acquisitions, however the current loans covenants restrict acquistions and sales.
There is a current buyback program on outstanding shares with a little less the $15 million remaining to repurchase shares, however, the current loan covenants do not allow for share buybacks.
The short interest on this stock was only 0.10% as of August 31.
The stock has not paid a dividend since going public and the current loan covenants do not permit one, however if a dividend is ever declared it will be paid equally on all classes of shares.
This isn’t a stock for every investor. It regularly trades with quite low volume levels (often below 2000), and only has 4.027 million outstanding shares, of which only about 15% of the total share base is not already held by insiders or institutions, so buying or selling shares could be difficult at times. However the low amount of available shares on this small cap could provide for more explosive price moves. The recent pullback makes this stock look extremely cheap here. I think it is worth looking into.
Many of the screeners I’ve looked at are not using proper data on this stock, and it is making the stock look like it is doing worse than it is. If you look into this one, it’s probably better to check the earnings reports.
In previous articles we looked at Century Link (CTL), Spartan Stores Inc (SPTN), DTE Energy (DTE), The Dow Chemical Company (DOW), Ford Motor Company (F), CMS Energy Corp (CMS), Whirlpool Corporation (WHR ), American Axle (AXL), La-Z-Boy Inc. (LZB), Domino’s Pizza Inc. (DPZ), and Penske Automotive Group (PAG)
I think these companies are worth looking into too.
Have a great day trading,
Disclosure: I currently do not own any SGA, but I may buy it in the future.
Disclaimer: This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.