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Rising Star Buy: Grupo Prisa

Jim Royal
February 26, 2011

This article is part of our Rising Star Portfolios series.

I follow special situations in my aptly named Special Situations portfolio. Today, I have a doozy of a situation, and it involves Grupo Prisa (NYSE: PRIS  ) (NYSE: PRIS-B  ) , a Spanish media company based in Madrid. The company owns attractive assets, but a buying binge ballooned its debt. Now, a recapitalization and subsequent deleveraging make the stock a cheap buy.

The company, and why I'm buying
Grupo Prisa has a diverse range of media assets, focused primarily in the Spanish language. It's involved in broadcast TV, pay TV, radio, publishing, and newspapers. The company owns a majority stake in the top-pay TV operator in Spain, with 70% market share by revenue. It also has a minority stake in the top free-to-air TV operator in Spain and a majority stake in the top TV operator in Portugal. And it fully owns one of the largest content-production companies in Spain. It even has strength outside the Iberian peninsula.

Its publishing arm, Santillana, has a strong position in language, textbooks, and trade publications, and it's exposed to the high-growth economies of Latin America, where the division derives 65% of its revenue.

Its radio division, with a 73.5% stake in Union Radio, is the largest Spanish-speaking network in the world, with a presence in 10 countries and an audience of 26 million across nearly 1,300 stations. It has a dominant presence in Spain, Chile, and Colombia.

Finally, its newspaper division contains the wholly owned El Pais, the top daily newspaper in Spain. It also owns a 15% stake in Le Monde, which has a presence in more than 100 countries. 

After the company made a huge spree of acquisitions, its debt surged to 8.5 times EBITDA as of September. But late last year the company merged with a special purpose acquisition company, which provided it an $870 million cash infusion and substantially diluted the former owners.  Importantly, the company is committed to paring down its debt and it has the strong cash-generating power of its media businesses to do it. One Citigroup analyst estimates that debt will be down to just 3.5 times EBITDA by the end of the year. This deleveraging will allow value to accrue to equity holders like us. In addition, the merger also established a listing in the U.S., so shares are more liquid for American investors. 

Just how cheap are shares?




Grupo Prisa 12.5 4.0
Sirius XM (Nasdaq: SIRI