A while back, I suggested that investors might profit from tuning into shares of Grupo Televisa (NYSE:TV), the world's largest Spanish-language media company. I was attracted by Televisa's good positioning to benefit from the rapid growth of the Spanish-language population worldwide, its pole position in the Mexican media market, and its overall performance -- it's a very well-run company that carries an attractive valuation. What's not to like?
Since that time, shares of Grupo Televisa, on a split-adjusted basis, have advanced 15% -- a decent performance, but one that fell well short of the 27% gain posted by the Amex Mexico Index over the same period, and a result that barely managed to beat the 13% rise in the NYSE Composite Index.
While I'm hardly one to complain about a solid gain, especially in this jittery market, Televisa's stock barely managed to outperform the less volatile NYSE Composite Index. That's annoying, and it prompts an observer to wonder what lies in the stock's future. More importantly, given the continued political uncertainty in Mexico and investors' increasing aversion to risk, is it time to lock in profits?
Hmmm.
In my Foolish opinion, the answer would be an emphatic "no." In fact, I think that shares of Grupo Televisa are even more attractive now than back in October and that investors shouldn't even consider changing the channel on this stock.
Simply put, I believe all of the legs of my original investment thesis remain intact. Demographic trends continue to strongly favor Televisa's core businesses, the company maintains its leadership position in the Mexican media market, and, best of all, strong operating results and earnings expansion have made Televisa's valuation more attractive than ever.
Let's take a look, shall we?
Demographics
According to the World Population Reference Bureau, Latin America's population is expected to grow 44% over the next 45 years, from roughly 559 million in 2005 to more than 805 million in 2050. By comparison, the population of Western Europe is expected to decline some 2% over the same period. Similarly, while the entire U.S. population is expected to grow 42% over the same time frame to 420 million, the country's Hispanic population is expected to more than double to 105 million, or 25% of the total.
While there's no reliable estimate for purchasing power that far out in the future, the U.S. Census Bureau recently predicted that consumer spending by people of Hispanic descent would hit $1 trillion by 2010. That's a projected increase of 61% over the $622 billion spent in 2003, and it's well ahead of the overall increase in U.S. consumer spending.
I think Grupo Televisa's ability to reach this rapidly growing -- and increasingly wealthy -- consumer segment might be attractive to advertisers. Don't you?
Market dominance
Grupo Televisa holds the lead in virtually all aspects of the media market in Mexico. In the most recent quarter, ended June 30, the company's four television networks, along with its approximately 260 affiliated stations, accounted for a 70.1% audience share of the overall Mexican TV market.
Furthermore, the company garners an even higher percentage of Mexico's most-watched programs, which offer the spots that advertisers covet the most. According to the Mexican subsidiary of the Brazilian Institute of Statistics and Public Opinion, Grupo Televisa's networks aired 162 of the 200 most-viewed programs in 2005 -- a whopping 81% share of this lucrative market.
Televisa also gains a nice chunk of change from licensing out its vast library of programming -- more than 95,000 hours' worth at last count. In addition to supplying content to its main licensing partner in the U.S., Univision (NYSE:UVN), which netted Televisa roughly $110 million in royalties in 2005, the company also licensed out close to 53,000 hours of programming worldwide.
Editorial Televisa, the company's publishing wing, shows similar strength. In 2005, this division published and distributed 68 titles in more than 20 countries worldwide and boasted an annual circulation of 145 million. In Mexico alone, Editorial Televisa's held a 48% share of the market as of the end of 2005, up from 45% in 2004.
While the company's other businesses don't exhibit the same degree of dominance as the broadcasting and publishing divisions, they are major players in their respective categories. For example, Televisa owns a 51% stake in Cablevision, a leading provider of cable-television services that holds roughly a 13% share of the cable-TV market. Radiopolis, the company's radio-broadcasting joint venture, reaches 70% of Mexico's population, and Esmas.com, the company's Internet portal, averaged 6 million unique monthly users in 2005.
On a side note, Televisa recently entered the gambling market with the opening of its first bingo and sports booking hall this past April. While the pace of additional rollouts has been slower than expected, this business could potentially prove a serious additional driver of earnings down the road.
I'd be remiss not to mention that Televisa recently entered the Spanish market with the May launch of La Sexta, a free-to-air channel, in which it holds a 40% stake. I'll grant you that the $120 million fee it paid for exclusive broadcasting rights to the World Cup in Spain might have been expensive, but it sure showed commitment to the stated goal of gaining a 7% share of the Spanish TV market by 2010.
You get the picture.
Operational excellence
Televisa's second-quarter results offer a snapshot of management's effectiveness. For the period ended June 30, Grupo Televisa reported operating revenue of $876 million, up 21% over last year's period, driven by strong results in broadcasting, radio, cable TV, and satellite operations. Operating income jumped 36% to $336 million propelled by margin improvement, while cash-flow generation remained strong as EBITDA climbed 33% to $398 million.
Obviously, nobody makes an investment decision based on the results of one quarter, but in Televisa's case, the quarter is just a further confirmation of its history of solid operating results.
Valuation
In any case, these strong results have enhanced Televisa' valuation. At a recent price of around $20 per share, Grupo Televisa now trades at 16 times fiscal 2006 estimates of $1.23, a 6% discount to the company's long-term growth rate and a 16% discount to competitors such as Motley Fool Stock Advisor pick Time Warner (NYSE:TWX) and Viacom (NYSE:VIA).
One last quick point: Although Televisa and its partners failed in their bid to acquire Univision, Televisa's 11.4% stake is now worth roughly $1.4 billion. Assuming the company decides to sell the stake -- and it previously announced its intention to do so -- that's a nice chunk of change that can be used either for future accretive acquisitions or to increase Televisa's dividend payout.
Call me a Fool, but I believe that investors should remain tuned into shares of Grupo Televisa, as they represent one of the most compelling growth stories in the media space.
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Fool contributor Will Frankenhoff is enjoying his time writing for the Fool more than reading The Financial Times, rooting for the New York Giants, or pondering the vagaries of life (pretty unsuccessfully up to this point). He welcomes your feedback. Will does not own shares in any of the companies mentioned above. The Fool has a strict disclosure policy.
