For all of the cultural differences around the world, TV is something of a constant: It seems that people around the world like to plop down in front of the boob tube and be passively entertained.
I've spoken in the past of interesting TV plays like Liberty Media (NYSE:L) and CentralEuropean Media Enterprises (NASDAQ:CETV), and today I'll add another to the list -- Luxembourg-based SBS Broadcasting SA (NASDAQ:SBTV), which isn't widely followed by U.S. analysts. Focused largely on Scandinavia and the Benelux countries of Belgium, the Netherlands, and Luxembourg, SBS has operations in Hungary and Romania as well.
Its results for the first quarter were solid. Revenue climbed 24%, as reported, and same-station revenue rose over 14%. The company's adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, was up 77% for the quarter, and if it were not for the acquisition of some new stations, the company would have posted a net profit for the period. As it was, SBS did reverse a year-ago operating loss to a small operating profit.
Looking at performance on a country basis, only the Netherlands, which makes up about one-third of the company's broadcast TV revenue, failed to post double-digit growth. Hungary led the way with 22% revenue growth, and every single region (including the Netherlands) grew at an above-market rate.
From the vantage point of this Fool's couch, the future looks bright for SBS. The company is something of a pioneer in Europe with respect to interactive and pay TV, and the recent acquisition of C More will further those efforts. For the first quarter, nearly one-third of the company's revenue was independent of advertising spending. That percentage should continue to rise, giving SBS added stability and operating leverage.
What's more, SBS has also refinanced its debt and secured a much lower interest rate. When the potential of lower interest payments is coupled with better performance from existing stations and leveraging acquisition and start-up costs for new properties, it looks as though future earnings growth should be strongly positive.
Of course, SBS isn't alone in the market. Though the company overlaps with Central European Media in only one market (Romania), it's not unreasonable to assume that the two companies will butt heads in the future. That said, they are looking at different markets: While Central European Media is pioneering private station ownership in many of its markets, SBS tends to deal with more established markets and focuses on higher-end offerings like interactive and digital TV.
SBS is not without its risks. Rivals like Vivendi (NYSE:V) and News Corp. (NYSE:NWS) aren't oblivious to the opportunities in Europe. What's more, SBS has a big chunk of goodwill on its books, and results can fluctuate pretty dramatically on a seasonal basis.
All that said, I'm coming around to the realization that well-run TV operations can produce considerable cash flows. While SBS isn't growing quite as fast as Central European Media, SBS is more reasonably valued, operates in more stable countries, and has a broader range of businesses (including pay TV, radio, and publishing). Both look to me to be good stocks, but I'd strongly insist that you do your own due diligence.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
