Atresmedia: Under The Radar High Yield From Spanish Media

Dudbrain/iStock Editorial via Getty Images Under the Radar Atresmedia On September 9, 2020, I published an article on Seeking Alpha about Atresmedia (OTCPK:AIOSF) (OTCPK:ATVDY). This was four years ago almost to the day when this follow-up article was submitted. The remarkable thing is that the article from four years ago was the last one that has been published about this media company on Seeking Alpha, and it happened to be the first Atresmedia article on this website as well. It’s safe to say that Atresmedia is “under the radar” with readers on Seeking Alpha. The stock is hardly covered. The company and the stock may be under the radar here, but this definitely doesn’t apply to some of the products that Atresmedia produces, such as the famous series “La Casa de Papel” (Money Heist) that was a major hit on Netflix (NFLX) or “El Embarcadero” (The Pier) that was produced for Movistar+, owned by Telefónica. More recently, “Marbella” is a successful series from the Atresmedia portfolio. For English-speaking audiences: make no mistake, when La Casa del Papel was at its peak popularity in 2020 / 2021, it outranked all other streaming series in the world. It was even bigger than Stranger Things and Game of Thrones. Spanish-speaking audiences can propel Spanish media to the top of popularity rankings worldwide, the opposite of being under the radar. The takeaway here is that there appears to be a bias towards English media on Seeking Alpha. Hopefully, this article can lessen this for a small part and balance the attention for the English media with a bit of Spanish perspective. Building on the Spanish media production successes in the last years, Atresmedia joined forces with Telefónica (TEF) around mid-2020 and created Buendía Estudios that since then produces Spanish content for many of the big streaming platforms, such as HBO Max, Netflix, Prime and platforms in the Spanish and Latin-American markets. Atresmedia and Telefónica each own 50% of this Spanish content powerhouse. Content production is only one of the Atresmedia activities. Locally in Spain, Atresmedia is one of the traditional broadcasters with broadcasting operations on TV and radio that are known in every Spanish household. Their most watched channel is Antena 3, which is the best watched linear TV channel in Spain. One can view Atresmedia thus as a traditional broadcaster with a strong position in their local Spanish market and, on top of that, with a strong position as a content producer for Spanish audiences worldwide. Investment Thesis For This European Broadcaster What could an investment thesis for a local European broadcaster and Spanish media producer look like? The European media market is much more fragmented than the massive US market. There’s incompatibility of languages in Europe, there are traditional broadcasters in each European country, the streamers are taking their share of the pie in every country and social media is having a role in changing media consumption. These are just a few of the dimensions that can make it complex to figure out what to expect as an investor from any of the separate European media companies that are active. It would be a big effort to study the entire European media landscape and the Spanish media consumption trends globally. Even on the basis of such a study, it would still be a challenge to predict how an individual company would perform, because media landscapes change all the time. Keeping the above in mind, this article will take a simple approach and a straightforward thesis. It will take a look if Atresmedia is growing, is financially stable and if an attractive return is to be expected if an investor would buy the Atresmedia stock. Such a return could either come through capital gains, if the current share price is on the low side, or through dividends or a combination of both. The thesis is that it makes sense to invest when there’s evidence that the company is growing, is financially stable, and that an attractive return can be expected. Quick Look At Atresmedia’s Business And Financial Performance My article about Atresmedia from four years ago was named “6 reasons why Atresmedia is an attractive turnaround play” At that time, the Atresmedia stock was trading at $2.84, compared with ~$4.50 now, and there were challenges that many European broadcasters were facing. COVID was bringing many sectors in the economy to a standstill, resulting in double-digit advertising revenue decline. In addition, content production couldn’t continue due to social distancing and new media launches had to be postponed. Atresmedia, normally a strong dividend payer, as we will see further on, had even paused dividend payments to preserve cash because it was unknown in 2020 how long the situation would remain unstable. The article concluded that all of the challenges were real, but at the same time had a promise of a turnaround in the post-Coronavirus period. Advertising revenue growth would then likely return, and production of content would no doubt resume. The low share price of $2.85 of Atresmedia reflected the challenges of the time and translated to a very low P/B value of the company of just 1.2. The share price has substantially risen since then, but it is still relatively low, historically speaking, as the below graph illustrates. Data by YCharts When we look at Atresmedia’s more recent financial perfomance we see that the company is indeed experiencing significantly improved conditions by YE2023 in comparison with four years ago. A turnaround seems to indeed be taking place as the below summary illustrates. Atresmedia FY2023 summary (Atresmedia Investor presentation 2023) The summary shows that modest growth has returned to the audiovisual and radio activities, with a ~2% growth in revenue to reach 971M euro in 2023. Growth is also returning in advertising, which is illustrated by the positive numbers of the ad market for TV and Radio. Things are indeed turning around, but it’s still at a modest pace in 2023. If we look at the first half of 2024, we see that growth of the top line is accelerating to double-digit in this year (see below overview). The net revenue in H1 2024 equaled 523.2M euro in comparison with 472.9M euro in the same period in 2023. Atresmedia H1 2024 results P/&L (Atresmedia H1 2024 results P&L) The above overview also shows that the Atresmedia business is also generating more net profits. The 69.1M euro in net profit in H1 2024 was an increase of more than 15% YoY. The revenue from H1 2024 of 523.2M euro indicates that the total revenue for 2024 will end up just over 1B euro. This is in line with the pre-Coronavirus years 2018 and 2019 when annual revenue ended up in the 1–1.1B euro range. The turnaround that the Atresmedia business is seeing is revenue wise, completed in 2024. In addition to the encouraging growth numbers, we can also assess the financial situation of the company by looking at the balance sheet. The summary here is that there’s a healthy situation. There’s cash available and there’s no issues with high debt or interest payments that are standing out. What To Expect When Investing In Atresmedia As said, at the time of writing my previous Atresmedia article four years ago, the company had just stopped paying dividends. Also in this respect, much has changed since then. The Atresmedia dividend history is shown in the below table and shows there’s a surprisingly stable and high dividend being paid every year since the pause in 2020. It fluctuates slightly, but since 2020, it’s at least 0.40 euro annually, with occasional special dividends as well. This means the stock is currently yielding over 9%! Dividend history (Atresmedia corporacion) It needs to be noted that Atresmedia doesn’t explicitly voice a commitment to a minimum annual dividend payout. There’s no advertised policy to promise a dividend payment, with a potential increase every year, that would eventually lead to a European dividend king or dividend aristocrat status. The company doesn’t appear to be interested in obtaining such a status. Instead, the high dividend payouts should be viewed in conjunction with the ownership structure of the company, as displayed below. Ownership split Atresmedia (Atresmedia website) Atresmedia is currently over 40% owned by Planeta DeAgostini and another 19% is owned by RTL Group (OTCPK:RGLXF). Planeta DeAgostini is a global family-owned company with a large global portfolio of media assets, and RTL Group is a German peer of Atresmedia. These owners apparently approve of substantial dividend payments to the holding companies. Investors need to be aware that the dividend is high, but that it’s also influenced by the two owners, who together own 60% and have a deciding vote in the shareholder meetings. Looking at the way that the dividend has developed over the last decade, it looks like Atresmedia is normally directed to distribute a major part of the net profits as a dividend to the shareholders. If that remains the same in the coming years, the shareholders can look forward to a very high dividend yield of 9% or higher. As we saw above, the Atresmedia net profit is increasing substantially, by over 15%, in 2024 and the owners are expected to want their paycheck to reflect this. The minority shareholders are bound to benefit at the same time. The other way of getting a return on the Atresmedia shares is through capital gains. If we look at some of the valuations of the European broadcasters, the PE ratios are usually in the 5 – 7x range, and Atresmedia doesn’t deviate from this. On that basis, there’s no good reason to assume that the Atresmedia share price will go up very much (or go down for that matter). The growth rates that Atresmedia is showing appear to accelerate in 2024, but the size of the revenue hasn’t fully recovered from Covid yet. It’s not guaranteed if growth can be maintained in the coming years to drive the market cap of the company up. On the other hand, there’s currently no reason te expect a decline either. Growth is accelerating at the moment and PE multiples for the industry don’t look unreasonable. Conclusion For The Investor Atresmedia is a traditional broadcaster in Spain, with a strong position in Spanish Media worldwide. After a difficult period in 2020-2021 things are back to normal and revenue in 2024 is expected to match the revenue of the pre-Covid years. 2023 has shown modest single digit growth, but 2024 is showing a significant acceleration. The company is financially healthy and has two big companies as majority owners, Planeta DeAgostini and RTL Group. Atresmedia turns a substantial annual net profit that the owners like to have distributed in the form of dividends. The last decade has only had one pause in the dividend payments, which was in 2020 due to Covid. Other than that, the dividend payments are consistent and high. The valuation of Atresmedia is in line with European peers. Growth is not so strong that major capital gains are guaranteed, but, having said that, it’s also not likely that share prices will decline much, because growth is still accelerating at the moment. An investor can value Atresmedia because of the strong position in Spanish media worldwide. The stock provides diversification from the crowded English media space. All in all, the current dividend yield, the accelerating growth in 2024 and the strong global position in Spanish media make this stock a buy. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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