Agreed. Cash flow is the name of the game and LEE will generate strong cash flow for years to come. The digital growth will continue to grow nicely and eventually will overcome the print revenue decline. LEE will continue to pay to the down the debt as they have in the past, almost $1B in the last decade. Buying shares at this pricing is a gift.
Sentiment: Strong Buy
Good to see you back on the board. LEE spent over $30M in 2014 to refinance the debt for the best deal they could get to extend the maturities way out to 2019 and 2022 so they did not have to worry about refinancing and took bankruptcy worries out of the picture. The first term loan should be extinguished in 2018 (due 2019) at which point LEE will start to pay a small dividend to shareholders. The 2nd term notes (12%) due in 2022 will be likely paid back in 2020 from ongoing stable cash flow. They can start paying this debt back at par in 2017. The remaining Notes (9.5%) will likely be refinanced in 2020 would be my best guess.
Hope you are taking advantage of these gift prices the market is offering for LEE. I added to my position this past week.
Sentiment: Strong Buy
After reviewing this past week’s Noble presentation, I am convinced that the market does not appreciate the value of LEE. LEE’s cash flow continues to remain strong as they had EBITDA of $163M in 2015 with margins above 22%, best in the industry. Digital revenues continue to grow at 16%+ CAGR and TownNews is now the leading Content Media Provider in the newspaper industry and is growing nicely. And the insurance settlement of $30.5M reported last week is some welcome news and this cash will be used to further pay down debt which was down to $704M at the end of December.
I am not saying all LEE’s problems are behind them as print revenues will continue to decline. Overall revenues declined 1.8% last year due print revenue. Market predictions are that print revenue will be down 4% again in 2016. If that happens at LEE coupled with digital growth of 16% and assuming flat subscription revenues, I predict overall revenues will decline 2% to $635M in 2016. At this revenue level, they should earn $0.51/share (ex items) versus $0.43/share last year. EBITDA should be in the $155-160M range and with the insurance settlement, they should pay down over $90M in debt this year. LEE’s forward P/E is about 3 and FCF/share is about 1.5 both incredibly low valuations. But these valuations are too low considering LEE strong cash flow and financing in place through 2022.
I believe that the newspaper industry will continue to consolidate with Gannett and Berkshire Hathaway continuing to be the main buyers. Both GCI and BK have expressed that they would like to be in markets which are LEE’s core. CGI recently announced they would buy JMG for $12/share, which is valued at 12.5x EBITDA. If LEE was purchased at a similar valuation assuming debt assumption of $650M (by time a transaction would complete), the price that would need to be paid for LEE’s equity would be over $20/share. At a modest 7x, the price would be about $8/share.
LEE looks like a nice buy at $1.51/share.
Sentiment: Strong Buy
Congratulations to the LEE management team and their employees on the repayment of the Pultizer Notes. Keep the ample cash flow coming so the debt continues to be reduced.
Solutia is an example of a company going bankrupt and existing equity holders getting part of the new company with warrants. They went BK in 2003 and it took 5 years to deal with their legacy environmental exposures. They emerged in 2008 with old equity holders getting 1% of the new shares and warrants for 17% additional at a discount. Shares started to trade around $6/share. Eastman Chemical bought out Solutia in 2012 for about $28/share. I doubt the original holder got back to whole.
HWCC certainly has had its recent results affected by the plunge of oil prices which has resulted from reduced CAPEX spending by companies in the oil sector. The oil sector makes up about 1/3 of all capital spending in the United States. But this recent sell off I believe is overdone and gives a good entry point from a long term investor perspective based upon Friday's close at $9.22//share. HWCC did earn $0.13/share in this recent quarter despite lower sales due to reduced capital spending. But I believe oil prices have already bottomed earlier in the first quarter, 2015 and I would not be surprised to see oil (WTI) back above $70/barrel by end of 2015 and above $90/barrel in 2016. As oil prices go back up, CAPEX spending will return and HWCC will be a beneficiary of increasing oil prices. I would not be surprised to see HWCC back above $13/share sometime in 2016, a 40%+ return. While you wait, the company is going to throw you a 5%+ dividend and will likely continue to buy in their own shares at these attractive prices, both shareholder friendly. I am a buyer at this price point and will likely be a long term holder of HWCC.
LEE posted a profit of $0.02/share ex items in the FYQ2 quarter, not bad considering this is typically their weakest quarter of the year. Revenue actually were positive Y/Y at up 0.9% as subs and digital revenue offset the declines in print revenue. They were able to pay down another $20M in debt and the Pulitzer notes should be done being paid off before the end of the fiscal year allowing management to start paying down the high interest debt. If revenues are flat in the current quarter, I would expect LEE to earn between $0.10-0.15/share ex items and to peel off another $20M in debt reduction.
Conference call on Tuesday, March 17, St. Patrick's Day. I assume earning will be released that morning or the night before. May the luck of the Irish be with you.
Thanks for the post. With most media companies (Newscorp, Gannett, Tribune, Scripps) spinning off their newspaper properties as stand alone companies with little or no debt, it might make sense for some consolidations in the industry to allow for further cost reductions particularly since their focus will be strictly on the newspaper business. Will LEE be a target? Maybe not now, but as they continue to whittle down their debt and maintain their operating cash flow, they will become more attractive to other potential buyers. Management did send the signal to others that they would entertain offers through these statements.
I also liked management giving direction on payment of the debt. After they finish paying off the Pulitzer notes (which should be done this year), they will start to pay off the higher interest rate 2nd Lien debt. Smart move. This will help lower interest being paid which can then be used for further debt reductions.
This news was certainly welcome. Wingspan has purchased for some of the same reasons I continue to hold shares. The strong cash flow and management's continued focus on debt repayment as they grow the digital part of the business. If your time horizon is long term (3-5 years), this stock is likely a 3-4 bagger.