VIC — Chris Mittleman

A couple "hard to buy" foreign values from the Value Investing Congress

By Travis Johnson, Stock Gumshoe, September 16, 2013

Chris Mittleman runs private money for Mittleman Brothers, and he presented at the last Value Investing Congress as well — he said he hopes to buy stocks that are great companies that have gotten cheap for temporary reasons. The ideas last time were Carmike Cinemas and Revlon, both of which have done quite well since.

His investment ideas are:

TV Azteca (pink sheets AZTEF), which trades only in Mexico (so it’s not trading today — holiday) and is the second largest television company in Mexico. Second largest producer of Spanish language programming in the world. They were privatized in 1993, and foreign investors have no leverage in Mexico.

They also own Azteca America, the sixth largest Spanish language TV network in the US, far smaller than Univision or Telemundo, but it’s also very new and has not done well over the last year. Their core US asset is station KAZA in LA, they own 25%.

They have proven that they have a durable franchise and compete against a much stronger company, their 30% market share versus dominant Grupo Televisa has been pretty steady over six or seven years, and there are high barriers to entry (physical and market and IP and content). They have been quite resilient to economic turbulence, their revenue and EBITDA rose even when Mexico’s GDP dropped dramatically during the economic crisis. Example: CBS in the US saw sales drop 6.7% during the crisis.

They’re also building a fiber-optic network in Colombia, about 60% complete and the government is fronting the capital to build it. Should be a significant new business when it comes fully online in 2014, could contribute $10 million to EBITDA in the first year.

TV Advertising in Mexico has not developed as well as it has in other countries, even somewhat cokmparable countries like Argentina, Panama, South Africa, Brazil. Ad revenues in the US are 1% of GDP, in Mexico they’re 0.48%. That could be a long-term tailwind.

Why is it cheap now? It’s been a bad year in both Mexico and the US, mainly due to programming — they’ve had their worst ratings setback. We don’t know when the cycle will turn and they have hits, but he thinks the ratings losses will not endure forever — they’ve recovered from bad years before. The drops in sales correspond very closely to rising sales at competitors, so it’s not a broader issue — ...

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