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Kyiv National Economic University
Bogdan Pavlik, Andriy Vernygor,
Daria Gontar, Tetiana Vozniuk, Tetiana Ohrimets
Long-term revenue stable growth of 2% CAGR in 2014-2018COUNTRY: LUXEMBOURG
RECOMMENDATION: BUY
CURRENT PRICE: €77.00
TARGET PRICE: €89.5
1
CAGR in 2014-2018
Rapid TV-web applications evolution
New expansion opportunities
Level of risk: medium
Cash Flow growth of 6%
COUNTRY: LUXEMBOURG
STOCK EXCHANGES:
FRANKFURT, BRUXELLES,
LUXEMBOURG
TICKER: RTL
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Industry overview
Business overview.
Financial analysis
Valuation Risks
1 2 3 4 5
2Segmentation & Audience share
Group M6
22.5 %French Radio
18.3 %
RTL Deutschland
30.6 %RTL Belgium
36.4 %
RisksValuationFinancial analysisIndustry overviewBusiness overview
RTL Netherland
33.5 %Other
around 30 %FremantleMedia
8,500 hours
350 programs
62 countries
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
3
TV
RTL GroupABCMTV
SamsungSonyPhilips
FremantleMediaRay William Johnson
Nigahiga
YouTubeApp storeFacebook
Value chain
Content Aggregation Distribution Devices
MCNs
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
BroadbandTVMaker Studios
Fullscreen
DisneyWarner Bros.
FremantleMedia
ComcastSky
Freeview
AppleAndroid
Windows phonePC
Industry overview.
Business overview
Financial analysis
Valuation Risks
1 2 3 4 5
Competitive position 4
Belgium
RTL – 36.3%
RTBF – 18.6%
Netherland
RTL – 32.3%
SBS Group – 20%
India
Main competitors – 75%
France
RTL – 22.9% / Radio – 13%
TF1 – 33.3% / NRJ – 12.6%
Germany
RTL – 33.7%
Pro7sat1 – 32.5%
Hungary
RTL – 37.3%
TV2 Group – 19%
Croatia
RTL – 27.5%
NOVA – 23.9%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Key market trends 5
Broadcasting Content
PlatformsHigh potential for
broadcasters: distribution fees from
platforms
Structural changesIncreasing importance
of the rights to the content because of
structural changes in the TV industry
Broadcasting Content Digital
AdvertisingTendency to growth on demand for television
advertising
Reducing riskBroadcasters may reduce risk by filling air time with content which has a track-
record.
FragmentationIncreasing demand for
content because of fragmentation of the digital channels and emerging platforms
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Industry overview
Business overview
Financial analysis.
Valuation Risks
1 2 3 4 5
6
CAGR=2.13%
2001
2086
2220
2013 2015 2018
Revenue analysis by divisions
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
CAGR=−2.33%
13831319
1229
2013 2015 2018
Revenue & margin analysis 7
24.10%
26.09%
19.56%
21.77%
16.10%
16.61%
12%
14%
16%
18%
20%
22%
24%
26%
28%
Level of margins, %
57655998 5889
60136140
62696401
6536
Revenue growth, €m
1,8%
RisksValuationFinancial analysisIndustry overviewBusiness overview
10%2011 2012 2013 2014 2015 2016 2017 2018
EBITDA margin EBITA margin
Net margin
2011 2012 2013 2014 2015 2016 2017 2018
RTL Group revenue
TV advertising markets across Europe continued to show signs of improvement. New TV channels strengthen RTL Group’s family of channels
Average annual growth is equal to 1.8% and represents the good tendency
FremantleMedia Nth-Am recently launched digital content studio. RTL Group completed the acquisition of a 65% majority stake in the video advertising platform SpotXchange.
After some deterioration in 2014 we expect the increasing in all kind of margins
8
28,5%35,2%
26,3%
+9 p.p.
DuPont analysis
RisksValuationFinancial analysisIndustry overviewBusiness overview
2013 2015E 2018E
ASSET TURNOVER
INTEREST BURDEN
FINANCIAL LEVERAGE 211% 222% 241%
103,9% 100,17% 99,44%
78% 84% 90% +12 p.p.
- 4 p.p.
+30 p.p.
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Industry overview
Business overview
Financial analysis
Valuation. Risks
1 2 3 4 5
10
14.81% 16.61%
23.60%26.09%
0%
10%
20%
30%
40%
50%
2014Е 2015Е 2016Е 2017Е 2018Е
Margins Comparison, %
Net Margin EBITDA Margin
5,600
5,800
6,000
6,200
6,400
6,600
2014Е 2015Е 2016Е 2017Е 2018Е
Revenue, €m
8.6%
Valuation forecasts
050
100150200250300350400
2014Е 2018Е
Taxes, €m
+18%
294
RisksValuationFinancial analysisIndustry overviewBusiness overview
Net Margin EBITDA Margin
2014E 2015E 2016E 2017E 2018E
431
300
200
100
0
-178
-52
+183
+184
Working capital, €m
+46%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
11
0
100
200
300
400
2014Е 2018Е
CapEx, €m
1%
Capital Expenditures are set
to increaseRTL GROUP enters new markets
EBITDA MARGINS rise
CapEx VS. Cash Flow
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
0
100
200
300
400
500
600
2014Е 2018Е
Free Cash Flow, €m
+13%
TV content launching
CASH inflows to progress
12
Slow GDP growth
%Discount rate
6,13%
Enterprise Value
17,286 €m
PV of Terminal Value
14,423 €m
UPSIDE
17%
DCF assumptions
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
TGR = 2% BUY
Equity Value
13,886 €m
14,423 €m
Net Debt
3,400 €m
PV of Cash Flows
2,863 €m€
€
13
SXXP Index0.8
SPX IndexBeta0.83
DAX Index
1.07
0.65
German 10Y government bond
Rf = 1,34
Cost of equity = 7.4%
Cost of debt = 1.7%
WACC6.13%
Equity risk premium: 7.3%
Tax rate: 26%
Share of Equity: 77.8%
Share of Debt: 22.2%
After-tax cost of debt: 1.2%
WACC calculation
WACC
Ter
min
al G
row
th
Rat
e
5.6% 5.8% 6% 6.13% 6.4% 6.6% 6.8%
1.7% € 95.15 € 90.25 € 85.80 € 82.96 € 78.00 € 74.57 € 71.40
1.8% € 97.84 € 92.68 € 88.01 € 85.04 € 79.86 € 76.28 € 72.98
1.9% € 100.67 € 95.24 € 90.33 € 87.22 € 81.80 € 78.06 € 74.62
2% € 103.66 € 97.93 € 92.77 € 89.50 € 83.82 € 79.92 € 76.34
2.1% € 106.82 € 100.77 € 95.33 € 91.90 € 85.94 € 81.86 € 78.12
2.2% € 110.17 € 103.77 € 98.03 € 94.42 € 88.17 € 83.89 € 79.99
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Enterprise value:
13,640 €m
Enterprise value:
3,234 €m
Share price:
12.82 €
Enterprise value:
10,902 €m
14
Societe Television Francaise 1
Peers valuation
Share price:
123.11 €
10,902 €m
Share price:
34.80 €
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
ProSiebenSat.1 Media AG
KabelDeutschland
Holding
Price range of RTL” Group : € 65 - € 124
15
Share price 2013
Share price 2014E
Share price 2013
Share price 2014E
EV / EBITDA calculations P / E calculations
Multiples valuation
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
UPSIDE
17%
€ 0.00 € 57.11 € 87.55 € 123 € 166.9 € 0.00 €69 € 73.7 € 103 € 136.1
BUY
Industry overview
Business overview
Financial analysis
Valuation Risks.
1 2 3 4 5
16
Med
ium
Hig
h
Regulatory risk
Market risk
Taxation
Financial risk
Changes in the intellectualproperty
Currency fluctuations
PR
OO
BA
BIL
ITY
Risk matrix
Insignificant Moderate Severe
Lo
w
Operational risk
Decrease of audience share
Reduction in barriers for new competitors
Negative macroeconomicconditions
Technological failures IMPACT
PR
OO
BA
BIL
ITY
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
17
Legislative restrictions on licenses and increase in the tax expenses
Managed by developing and exploiting new revenue sources
Foreign currency fluctuations
Managed by using foreignexchange forward contracts
Analyzed risks
Decrease in audience and advertising market shares
Managed by expanding new markets
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
18
digital programmatic advertising
distribution at global scale
17% upside
Upside split
HD technical potential
Base price €77
Current price€84
Target price €89,5
Drivers
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
19
250
300
350
400
450
Fre
quen
cy
1 StdDev=59.3
Mean = 87.95
- 1 StdDev=80.6
Median = 87.89
Monte Carlo simulation
0
50
100
150
200
67.71 77.48 87.25 97.02 108.18
Fre
quen
cy
RisksValuationFinancial analysisIndustry overviewBusiness overview Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
THANK YOU FOR ATTENTION!THANK YOU FOR ATTENTION!THANK YOU FOR ATTENTION!THANK YOU FOR ATTENTION!
Appendix I 20
Input and Assumptions - RTL
Seller Name:Seller Ticker:Last Historical Year: 31.12.2013Valuation Date: 30.01.2014
Months in Year: 12Conversion Units: 1 000 000
Circularity: YesCircularity Breaker: No Operating Case: 1Base
1BaseStock & Option Information: 2ConservativeStock & Option Information: 2Conservative
3Optimistic
Common Shares Outstanding: 154790000
Current Share Price: € 77.00
Enterprise Value Calculation:Equity Value: 11 918 830 000 Less: Cash & Cash-Equivalents: 574 000 000
Plus: Total Debt: 3 974 000 000
Diluted Shares: 154 790 000 Enterprise Value: € 15 318 830 000
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix II CAGR by divisions
2010-2009 2011-2010 2012-2011 2013-2012 CAGRMediengruppe RTL Deutschland 108.67% 101.17% 103.15% 101.99% 2.10%Groupe M6 105.02% 97.71% 98.30% 99.71% -2.33%Fremantlemedia 107.54% 112.20% 119.37% 90.12% 3.75%RTL Nederland 112.97% 117.46% 86.76% 106.81% 5.31%RTL Belgium 103.47% 103.35% 97.22% 99.52% -0.76%RTL Radio (France) 99.42% 106.98% 97.83% 97.22% 0.29%RTL Hungary 126.51% 94.29% 102.02% 99.01% -1.61%RTL Hungary 126.51% 94.29% 102.02% 99.01% -1.61%RTL Hrvatska 92.68% 97.37% 83.78% 106.45% -5.28%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix III Revenue by divisions
Revenue 2013
Revenue 2015E
Revenue 2018E
Mediengruppe RTL Deutschland 33.98% 34.37% 34.78%
Groupe M6 23.48% 21.73% 19.25%
Fremantlemedia 26.03% 27.19% 28.87%
RTL Nederland 7.73% 8.31% 9.23%RTL Nederland 7.73% 8.31% 9.23%
RTL Belgium 3.55% 3.42% 3.25%
RTL Radio (France) 2.97% 2.90% 2.78%
RTL Hungary 1.70% 1.59% 1.44%
RTL Hrvatska 0.56% 0.49% 0.39%
Total 100.00% 100.00% 100.00%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix IV
PROFITABILITY2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
gross profit margin
(revenue-COGS)/revenue 17.6% 22.2% 21.3% 19.9% 21.4% 22.2% 22.9% 23.6% 24.2% 24.8%
net profit marginprofit after tax/revenue 5.8% 13.2% 13.8% 11.5% 16.1% 13.0% 13.6% 14.1% 14.6% 14.9%
operating profit margin
operating profit/revenue 13.2% 19.4% 20.5% 17.2% 18.7% 19.2% 19.7% 20.2% 20.7% 21.0%profit before
pre-tax marginprofit before tax/revenue 14.2% 20.4% 20.7% 16.1% 21.3% 19.9% 20.4% 20.8% 21.1% 21.4%
return on assets
profit after tax/average total assets 3.6% 8.9% 9.6% 8.4% 11.5% 10.8% 11.6% 12.3% 12.9% 13.5%
return on total capital
operating profit/average total liabilities and assets 8.3% 13.0% 14.4% 12.5% 13.4% 16.0% 16.8% 17.6% 18.3% 19.0%
return on equity
profit after tax/average total equity 6.0% 14.8% 16.1% 14.0% 19.2% 25.0% 26.7% 28.3% 29.8% 31.2%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix V
LIQUIDITY2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
current ratio
current assets/current liabilities 160% 164% 147% 149% 116% 110% 104% 98% 93% 88%current ratio liabilities 160% 164% 147% 149% 116% 110% 104% 98% 93% 88%
quick ratio
(current assets -inventories)/current liabilities 114% 128% 111% 111% 82% 76% 71% 67% 62% 58%
cash ratio
cash&cash equivalents/current liabilities 15% 32% 28% 26% 20% 18% 17% 16% 15% 13%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix VISOLVENCY
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018Elong-term debt-to-equity
non-current liabilities/total equity 11% 10% 10% 12% 30.28% 27.80% 27.80% 27.79% 27.77% 27.74%
debt-to-equity ratio
total liabilities/total equity 58% 58% 61% 63% 111% 114% 122% 131% 141% 152%
total debt ratiototal liabilities/total assets 37% 37% 38% 38% 53% 53% 55% 57% 58% 60%
financial leverage
total assets/total equity 158% 158% 161% 163% 211% 214% 222% 231% 241% 252%total liabilities/total
debt to capitaltotal liabilities/total liabilities & assets 37% 37% 38% 38% 53% 53% 55% 57% 58% 60%
ACTIVITY2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
receivables turnoverrevenue/average recevaibles 239% 256% 267% 278% 273% 322% 329% 336% 343% 350%
DSO365/recevaibles turnover 153 142 137 131 134 113 111 109 106 104
total asset turnover
revenue/average total assets 63% 67% 70% 73% 71% 83% 85% 87% 89% 90%
working capital turnoverrevenue/average working capital 419% 450% 469% 488% 479% 489% 499% 510% 520% 531%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix VII
Extended DuPont analysis2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
EBIT margin EBIT/revenue 13.70% 20.10% 21.20% 16.32% 20.48% 19.83% 20.37% 20.85% 21.26% 21.62%asset turnover revenue/total assets 59% 63% 70% 76% 78% 81% 84% 87% 90% 93%
interest burden EBT/EBIT 101.44% 97.63% 98.88% 103.90% 100.41% 100.17% 99.84% 99.44% 98.95%
financial leverage total assets/total equity 158% 158% 161% 163% 211% 214% 222% 231% 241% 252%
tax burdennetincome/pretax income 68% 77% 75% 71% 76% 74% 75% 76% 77% 78%tax burden income 68% 77% 75% 71% 76% 74% 75% 76% 77% 78%
ROE 0.00% 15.45% 17.49% 14.22% 26.38% 25.52% 28.54% 31.79% 35.29% 39.10%
2011 2012 2013 2014E 2015E 2016E 2017E 2018EEBITDA margin 24.51% 19.61% 24.10% 23.60% 24.30% 24.95% 25.54% 26.09%EBITA margin 19.67% 17.97% 19.56% 19.99% 20.53% 21.01% 21.42% 21.77%Net margin 15.46% 11.52% 16.10% 14.81% 15.39% 15.88% 16.28% 16.61%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix VIIIRTL Group - Unlevered Free Cash Flows Projection
Projected2014 2015 2016 2017 2018
Revenue: 6 013 6 140 6 269 6 401 6 536
EBITDA: 1 419 1 492 1 564 1 635 1 705
EBIT: 1 192 1 251 1 307 1 361 1 413
Less: Taxes 305 320 334 348 362Plus: Depreciation 217 232 247 264 282Depreciation 217 232 247 264 282Plus: Amortization 10 10 10 10 10
Less: Changes in NWC: 294 116 64 247 431
Less: CapEx: 302 308 315 322 328
Unlevered Free Cash Flow: 517.8 747.6 850.7 718.2 584.0PV of Free Cash Flow: 487.9 663.7 711.6 566.1 433.7
Projection Year: 0 1 2 3 4 5Mid-Year Conversion Discount: 0.5 1.5 2.5 3.5 4.5
Free Cash Flow Growth Rate: 44% 14% -16% -19%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix IX
RTL Group - DCF Assumptions & Output
Discount Rate: 6.13%Terminal Growth Rate: 2%
PV of Terminal Value: 14 423
RTL Group - WACC Calculation
Risk-free rate 1.34%
Beta 0.83Equity risk premium: 7.3%Cost of equity 7.40%
PV of Terminal Value: 14 423Sum of PV of Cash Flows: 2 863.0Enterprise Value: 17 286Net Debt: 3 400Equity Value: 13 886
# of Shares Outstanding: 155Implied Share Price 89.5Current Share Price: 77Upside: 17%
Cost of debt 1.68%Tax rate 26.00%After-tax cost of debt 1.24%
Share of Equity: 78%Share of Debt: 22%WACC 6.13%
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix X
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview
Appendix XI
Q&ARisksValuationFinancial analysisIndustry overviewBusiness overview