Cyrrus (Cyrrus)
Czech markets  |  December 18, 2012 09:31:43

CME - HOLD to $ 6.6 = about 126 CZK

CME's share price this year has gone through several ups and downs especially in response to quarterly results and information about debt position. The current price has, in our opinion, adequately reflect potential future risks, and therefore we have a title assigned investment HOLD recommendation with a target price of $ 6.6.

Central European Media Enterprises currently going through a difficult period. The ongoing European debt crisis has precipitated a number of companies to their knees and forcing the others to save significantly.It then appears on the volume of the advertising that the whole year and not dropping views of the Q4 2012 and 2013 is not brilliant.

Large boulder ahead of the company CETV rolls the debt. Volume issued long-term bonds amounting to USD 1.19 billion, which is 1.1 times equity. Such level is unsustainable in the long run due to the amount of interest that the company must pay and which in 2012 will reach approximately 76% of operating profit EBITDA.

Despite all of the above problems, but consider the business in which the company operates CME for long-term prospective and competitive strength of the company consider to be strong. CME is a leading media company in all countries where it operates, both in viewership and in income from advertising.Remains the largest market in the Czech Republic, which is almost twice as large as the second most important market of Romania. Competition in the Czech Republic is relatively large, we do not assume, therefore, that despite starting new smaller TV stations CME was able to further strengthen its position.

A prerequisite for the growth of the share price are signs of recovery in economic activity in Central and Eastern Europe. Firms currently saving at all levels including the cost of advertising. This year even suspended the ad hoc spending on advertising in the pre-Christmas period. Another necessary condition is the solution to the debt position. That would greatly help the largest shareholder of Time Warner (TW), which currently holds a 49.9% share in May 2013, could further increase the share and become the majority shareholder.Efforts to increase the company's share and financial support was evident in this year, therefore it would be logical if TW anytime soon increased its stake above 50%. This could positively affect the cost of the debt.

Situation in the media market or the company itself is not in the current era quite favorable, however, we believe that the recovery in the region comes and debt will be reduced gradually. But it will run for a longer haul.

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CME - DRŽET s cílem 6,6 USD = cca 126 Kč

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