CTC Media Inc., which has tumbled to a record low in 2015, will struggle to convince investors they should reconsider the stock when it reports second-quarter results Wednesday as a slowing economy and tighter government control weighs on the TV broadcaster’s earnings.
Revenue declined about 50 percent while net income tumbled more than 80 percent in the three months ended June 30, according to at least four analysts surveyed by Bloomberg. Shares of the Moscow-based company have plunged 81 percent in the past year, the worst performance on a Bloomberg index of Russian stocks trading in the U.S.
The company, which gets more than 95 percent of its sales from advertising, has posted six consecutive quarters of revenue declines as it’s squeezed by an economy entering its first recession since 2009. Russia’s TV ad market shrank 22 percent in January through March to about 30.6 billion rubles ($510 million), according to data from the Association of Communication Agencies of Russia.
“For a company that depends so much on advertising, the situation of a contracting economy and thus a shrinking ad market creates difficulties that are hard to overcome,” Konstantin Belov, an analyst at UralSib Capital in Moscow, said by phone on Monday. “The bigger uncertainty weighs on the company’s future as it is running out of time to comply with the media law.”
The audience share of CTC TV, the company’s flagship channel, dropped to 4.3 percent from an average of 4.9 percent in the first quarter, Belov said, citing data from TNS-Global. The analyst forecasts a 27 percent decline in CTC Media’s second-quarter sales.
“The weak TV advertising market will likely have remained the major drag on CTC Media’s financial performance,” Sberbank CIB’s Maria Sukhanova said in a research note.
Investors have been abandoning the company, which is about 39 percent owned by Stockholm-based Modern Times Group AB, as it faces a change in Russia’s media law that will lower the threshold for foreign ownership to 20 percent from 50 percent.
Billionaire Alisher Usmanov offered $200 million for 75 percent of the company’s Russian and Kazakhstan business operations, CTC Media said this month. Usmanov is bidding for the CTC Media business through UTH Russia, the company he co-owns with partner Ivan Tavrin.
CTC Media can use the money from such a deal to buy back stock from minority investors at about $2.30 a share, according to Sergey Libin, an analyst at ZAO Raiffeisenbank who recommends buying the stock. The shares, which sold for as high as $30 in 2008, were little changed at $1.86 in New York on Tuesday as the Bloomberg Russia-U.S. Equity Index added 0.8 percent for the first gain in five days.
“This creates an about 20 percent premium from the current share price, which is a good deal,” Libin said by phone.
The company trades at 7.6 times projected earnings, the cheapest among 10 peers, data compiled by Bloomberg show. Its 14-day relative strength index hovers near 30, a level that some technical analysts see as a signal a security is poised to rise.
On a scale from 1 to 5, CTC Media has a consensus recommendation of 2.7, the second-lowest among its global peers. Total buy recommendations on the stock dropped to 2, the smallest since 2007, data compiled by Bloomberg show. The average 12-month price target of 12 analysts is $3.07, implying a potential 65 percent return from Tuesday’s close.
“The audience share, the ad market and the ruble are weaker year over year, which leads us to forecast a deterioration in sales in the second quarter,” Mitch Mitchell, an analyst at BCS Financial Group in Moscow, said by phone on Monday. “This combination along with the looming deadline to comply with the media law don’t add too much optimism.”