Looks like Steve Goldstein was unloading his SGA stock with both hands as '05 drew to a close---he dumped darn near a million shares. Maybe he saw the writing on the wall and decided to lighten up before this dog slid down into single digits.
Take a hint from Steve "Insider" Goldstein--dump this P.O.S. before it hits $5/share...unless you have a more productive use for those pretty light-blue share certificates---maybe your bathroom walls could use repapering...
It took a couple of years for this ship to sink, but you can't say you weren't warned:
QUOTE FROM MY 01/26/2006 POST: Take a hint from Steve "Insider" Goldstein--dump this P.O.S. before it hits $5/share...unless you have a more productive use for those pretty light-blue share certificates---maybe your bathroom walls could use repapering...
......and just look where the share price is now. $5 and change. It was obvious this company was gonna tank back then. The INSIDER selling. The INSTITUTIONAL Selling. The oblivious and clueless management. I've shorted this dog all the way down and recovered my losses that I took on the long side when the price was dropping in the teens. Thank you Saga, for proving me correct and giving me my money back on the short side. Much obliged. :)
That would be down 20%, unless you took advantage of the dead cat bounce at the beginning of June to get out with a few pennies of profit.
Time to wake up, folks! The US is heading into a major recession....and this ain't no "safe haven" stock.
Smart cookies are gettin' the heck out of dogs like this before they get wiped out.
Here are some facts from SGA's recently filed 10-K. You decide whether this is a well run company that's at the low point in the curve, or whether SGA is in a secular downturn with a marginal management (read: average).
Consider: From 2003-2005, SGA made $70mm of station acquisitions. From 2003-2005, station operating income (or broadcast cash flow) increased from $42.2mm to $45.4mm. Another perspective: for $70mm, SGA increased its cash flow $3.2mm, in aggregate.
In fact, SGA didn't overpay for acquistions that badly (though it did overpay). The reason for the distortion is that its existing stations' cash flow declined, particularly in SGA's major markets--markets where a) SGA faces the most competition and b) SGA produces the bulk of its EBIT, SOI, and EBITDA, acc. to the 10-K.
Consider (again, all figures from 10-K):
Cash flow by market, figures in millions:
Columbus: 2003: 5.1 2004: 4.3 2005: 4.1
Manchester: 2003: 4.6 2004: 4.8 2005: 4.1
Milwaukee: 2003: 9.7 2004: 10.6 2005: 9.5
Norfolk: 2003: 5.1 2004: 5.3 2005: 4.1
4 major markets combined cash flows:
2003: 24.5mm 2004: 25.0mm 2005: 21.8mm
Broadcast CEOs and CFOs like to talk about political as the cause of their shortcomings. So here we can measure 2005 against 2003, the last period that corresponds as a year without major political advertising tightening the markets and boosting pricing.
What this shows is that in the four major markets in which SGA operates, from 2003 to 2005, cash flows actually declined 11%.
Interestingly, according to the same 10-K, SGA appears to be losing market share in these major markets or spending more money competitively to earn lower cash flow, for the company says, "radio revenues in each of the Columbus, Manchester, Milwaukee and Norfolk markets have remained relatively stable historically."
EBIT margins, EBITDA margins, SOI margins, and returns on invested capital have all fallen the past two years companywide.
As to the timing of your suggested 'recovery,' well, the company, like many radio broadcasters, has already said that the first quarter 2006 will be down from the comparable quarter last year and provided no update on the balance of 2006. And insofar as 2006 is the political/Olympics year that all broadcasters point to as the cyclical recovery year, and the current company forecast still calls for declines, I'm puzzled why you, management, Ed, or any investor thinks SGA will out-perform its industry anytime soon. Why do you think this company can generate cash flow growth without making acquisitions, and why do you think Ed et al. can produce wealth for owners using his current (perpetual) strategy, when over 10 years now, he's produced -0- owner wealth AND the industry is at the worst trough over the same period?
That strategy, as a reminder, is to buy stations at 11-14 multiples of cash flow (higher than the company's valuation of ~8X cash flow), funded with debt or low-priced equity, and NEVER sell assets, regardless of the values they might fetch. (You heard Ed dismiss the last caller on the conf. call, who dared to suggest SGA consider selling assets at high prices and buying back stock at low prices: "Next question.")
I was a bit disappointed in the conference call as well - felt the explanation should have been stronger on the fourth quarter shortfall. While not unexpected on the revenue side, letting expenses jump 10% during a revenue slump deserved more than the muffled mea culpa we got.
However, it'd be a mischaracterization to say Christian has a Pollyanna-ish attitude toward radio. He knows it's not "fine" - merely believes it'll recover as it has against challenges past. It's an arguable point, but his head isn't in the sand by any measure.
I will agree with "rocky" on one point - were it not for the multiclass stock structure, Ed would be answering MUCH more pointed questions from his board than he doubtless is.
Hearing rumbles out of a few markets that the expense side is being addressed, as promised - a good sign. If they can get the company delivering the same numbers they let the analysts show without correction, then there's no reason to expect a return to a less discounted P/E ratio after a quarter or two.
Has it hit the low point in the curve? Nobody knows. But timing a lightly-traded stock like this is an iffy proposition even when not under duress. There's more room to move up than down.
I just completed listening to the conference call, which just ended. With the completion of the call, SGA trades at $9.65, marking a 52-week low and a return to where the stock last traded during 1988. The stock traded at these levels as well during 1996 and, given that SGA pays no dividend, owners (apart from Ed, who draws approx. $1mm in compensation) nominally are flat over the past decade, and certainly down substantially adjusted for inflation.
What Ed and the board ignore while ranting about how everything is fine, and radio is alive and well (!!) is that there is both new supply for the advertising market and there are new methodologies for verifying the effectiveness of advertising. The proliferation of cable and internet have made more options (not fewer) for advertisers, so increasing supply results in lower prices. And because advertisers have always bemoaned the '50%' of advertising they knew was wasted but couldn't calculate precisely, alternative media that offer verified advertiser response (such as the internet) are naturally attracting those same advertisers.
Yes, Ed et al. are correct that radio listening, on balance, is not down much, though is down marginally, and yes, satellite isn't making significant inroads numerically--yet. But what Ed, like many radio CEOs discounts (or ignores) is that investors value companies on the margin: based upon current and anticipated events. We believe and expect the current trends of softness in pricing and softness in advertising revenues to persist, and so we (investors) have reduced the multiples we are willing to pay for radio and TV broadcasters.
Most radio CEOs are like Ed: old-line radio guys, who grew up through the ranks and at one time did everything in a radio station, from sales, operations, deejay, to painting the building. I respect that. But there's a difference between being a radio operator and being a successful public company CEO. The difference primarily relates to allocation of capital.
And that's where the Eds of the world, sadly for SGA owners, fall flat. Ed still believes that if you can buy a radio station for 12-13X cash flow, you can make money for your owners by acquiring it, bringing your magic to improve operations and cash flow, and increasing revenue and cash flow thereafter.
That works swell in a climate of 5-7% revenues growth, when you can be a commmunity participant, treat your employees to 4% salary increases every year, and distribute bonus checks to key sales people. Yeah, if only those days were still here (or remotely likely to return). Ed and other public radio CEOs stick their head in the sand while investors tell them (with our mouths, feet, and pocketbooks) that broadcasting is in a cyclical and probably secular decline, and the CEOs scoff at us. It'll come back, they say, denying that 2005 was DOWN in revenues (oh...sorry...NOW it's okay except for...political), and now, in a POLITICAL year, it's DOWN AGAIN in 2006. I see. We're just short-term. Impatient. Uh-huh.
Sorry, Ed. 5-7% secular growth is dead. You just keep buying stations at high multiples, rewarding the sellers, and then incurring problems whenever and wherever legitimate competition lurks. It's easy being king in Ithaca, NY, or Mitchell, SD. Sledding's a lot tougher in Columbus, Norfolk, and Milwaukee, where you vie against big-time radio operators.
What SGA has always missed was a public company CEO. Instead, SGA has an owner-operator who thinks radio radio radio instead of, "How can I maximize shareholders for the long-term?" He's hilarious criticizing short-term competitors and investors. His stock trades where it was in 1996, while he's taken out $8-10mm since then.
If SGA didn't have two classes of stock, Ed would've rightly been ousted (or reduced to an operating role) a long time ago.
> What do you like about SGA that you don't
> see with CDL, CMLS, CCU, RGCI, et al.?
Just a few items ...
1) A very conservative balance sheet with a current ratio for the last couple years well over 2:1. Saga is a cashflow-focused company.
2) Compared to other broadcasting companies, Saga hasn't overdone its longterm debt on acquisitions. In a time of accelerating interest rates, Saga will survive far more swimmingly than its peers.
3) The fact that its earnings "misses" vis-a-vis analyst expectations have come mostly from exceptional events for the last few quarters, rather than any systemic problems.
4) As before, its current P/E ratio runs far below its industry peers.
5) In contrast to many of its peers, Saga has NOT depended heavily on acquisitions to grow its numbers. If anything, they've been too conservative in that area but as the Fed keeps bumping the rates up the strategy's proving wise from a cash flow standpoint.
Saga's market-share challenges (Milwaukee, Portland and Norfolk) showed more glaringly without a slew of "new," acquired markets to offset downticks in those locales, but the company operates its stations for the long haul and takes its lumps when those short-term skirmishes happen.
As before, assuming no 4th-quarter operating "surprises" tomorrow and a decent first quarter set of numbers, there should be no reason to expect Saga to stay in the $10 range for long. It may be the first quarter's numbers rather than the fourth that provide that upward pressure - after a couple misses, a little wariness is understandable - but there's nothing scary there for the company long term.
"If you want to be in commercial radio (I've looked at all the rest, CDL, CMLS, CXR, CBS, yadayada), why wouldn't you be in SGA?"
I guess one would first ask why one would want to be in commercial radio to begin with. It's no secret that listenership has been on a slow steady decline for years with pricing and inventory strategies being re-evaluated.
Underlying fundamentals are slowly eroding with "growth through acquisition" being the only real viable growth strategy. This is where regulation comes into play.
Saga's margins and returns on equity, while still impressive in the radio industry, are also eroding.
While I've never been a proponent of laissez faire in broadcasting, one has to wonder about the long-term viability of the strictly advertising-based business model. I have no doubts about Saga's management, only the business they're in.
Frankly, I can't see a point in holding a stock with the notion of losing half my investment. I guess that makes us different kinds of investors. If SGA did fall to $5, I may be fighting you for space with my pickup bed open ;-), but only if the fundamentals stayed consistent and reliable.
What worries me most is the very large institutional involvement with SGA stock and the only nominal insider involvement. Institutions can dumped this small float like a bad habit...en masse! I again point to what happened with Westwood One (WON) on Friday.
You're right, traditional media and advertising seems to be hated by the market right now (with the possible exception of billboard company Lamar). However, the "value" seems to be in the aggregate industry as opposed to the individual companies. Eventual individual winners and losers are hard to delineate at this time.
What would you see as a possible catalyst for a turnaround in this stock? We're heading into an election cycle, yet still these stocks are hitting new lows with multiples contracting quarter by quarter.
What do you like about SGA that you don't see with CDL, CMLS, CCU, RGCI, et al.?
I'll tell you what I feel about SGA. I've followed this stock on and off for years. First noticed it when it was 5-8 bucks with that radio station in Rejkjavik.
It seems like an extremely well run company, and at ten and under, a buy I just couldn't pass up. If it hits five and is still making money, I'm going to back up the truck.
I don't use stop orders. If something fundamentally changes that I don't like, I'll sell. For example, I got burned on Dana, believed their press releases -- bought at 16 and then down to 13. But when they restated, I sold on the dead cat bounce from 5 to 8, so I got more than half my money back to put someplace else.
I don't see anything changing with SGA. The issue is one of perception. People think free radio, like newspapers, are done. Take a look at NYT and TRB and GCI -- if people are still reading newspapers and listening to commercial radio in five years,these stocks represent real value.
When TV came, the movie theaters were supposed to close, but when Ford rolled out the model T, you didn't want to be in buggy whips.
If you want to be in commercial radio (I've looked at all the rest, CDL, CMLS, CXR, CBS, yadayada), why wouldn't you be in SGA?
Have you set a stop-loss at this price? I'm a little worried about the possible market reaction to the earnings report next week. Look what the market did to Westwood One today; down over 17%!
I like the fact that SGA is trading at an historically low EV/EBITDA, which is in line with other smaller broadcasters with similar highly-leveraged balance sheets.