Hast Du die Studien nicht gelesen? Da steht doch nun wirklich alles drin. Das Geschäftsmodell ist doch gerade das Geniale (wenn man ans Gelingen glaubt).
Hier ein paar Auszüge. Zunächst VMR, dann CIBC.
Gruß
EXPRO
TEAM Communications Group, Inc.
Ongoing Research
22.08.2000
Empfehlung: Kaufen
Nemax Media & Entertainment Index: 96,15
Kurs: € 8,30
Marktkapitalisierung: € 116,5 Mio.
Kursziel (12 Monate): € 23,-WKN:
917 002
Analysten: Ralf Marinoni, Lars Kuhnke
Der aufkommende Star!
Team Communications Group, Inc. („TEAM“) hat seit dem Secondary
Listing am Neuen Markt das Ziel, ein führendes multinationales indepen-dent
Produktions- und Distributionsunternehmen zu werden, konsequent
verfolgt.
Seit unserer letzten Studie vom 17.11.1999 konnten wir substanzielle
Veränderungen bei TEAM beobachten, die uns zu einer Neubewertung
veranlassen. Neben einer Verstärkung des Managements wurden neue
TV-Projekte realisiert und die Library auf über 4.000 Stunden Film-Mate-rial
ausgebaut. Unsere Umsatzprognosen konnte TEAM bereits im Jahre
1999 um über 65% auf US-$ 24,1 Mio. übertreffen. Aus diesem Grund
heben wir unsere Umsatz- und Ergebnisprognosen für die kommenden
Jahre deutlich an. Auf Basis einer Discounted Cash Flow-Bewertung er-gibt
sich ein Unternehmenswert von US-$ 291,0 Mio., was einem Aktien-kurs
von € 23,12 entspricht. Die Multiple-Bewertung rechtfertigt dar-über
hinausgehende Kurse.
Investmenthighlights
• Im 1. Halbjahr 2000 konnte Team seinen Umsatz im Vergleich zum
Vorjahreszeitraum um 178% auf US-$ 19,5 Mio. steigern. Damit kann
Team schon nach 6 Monaten des laufenden Geschäftsjahres unsere
alte Gesamtprognose für 2000 zu ca. 74% erfüllen. Im 3. und 4. Quartal
sehen wir die Hauptumsätze, die bei Team i.d.R. zwischen 70 und 75%
des Gesamtjahresumsatzes ausmachen.
• Personelle Verstärkung: Alan D. Liker ist seit April 2000 neues Vor-standsmitglied
der Team Communications Group. Herr Erhart Puschnig
(ehemals Manager bei RTL) übernimmt den Posten des Geschäftsfüh-rers
in Deutschland. Er wird unterstützt durch Stefan Forstner, der die
IR-Aktivitäten von TEAM Germany steuert.
• Anstieg des Bestandes an TV-Programmen von 3.000 auf 4.000 Stun-den
durch erhöhte Eigenproduktion und Library-Akquisitionen seit dem
Secondary Listing im November 1999.
• Durch den positiv verlaufenden internationalen Verkauf der Serien “Call
of the Wild” (2. Staffel mit 13 Serien in Produktion) und “Total Recall”
vertreibt Team derzeit TV-Programme in mehr als 60 Länder welt-weit.
• Unseren Umsatzprognosen liegen konservative Annahmen zu Grunde.
Sie weichen von bereits veröffentlichten Schätzungen ab, da sie keine
externen Effekte (Akquisitionen, Beteiligungen) abbilden.
Kursentwicklung 29.11.99 - 22.08.00
Quelle: Bloomberg
--------------------------------------------------
Was unterscheidet TEAM von anderen Medienunter-nehmen?
TEAM ist international (I): Hauptsitz ist Los Angeles, wo-durch
ausgezeichnete Kontakte zu Schauspielern, Drehbuch-autoren
und Produktionsunternehmen aufgebaut werden
konnten. Mit Niederlassungen in London und München be-stehen
Vertriebsstrukturen in den wichtigsten europäi-schen
Märkten.
TEAM ist international (II): Die Gesellschaft realisiert Pro-jekte,
die sich international verwerten lassen. Serien wie
„Call of the Wild“ wurden bereits an TV-Stationen in den
USA, Europa, Asien und Lateinamerika lizensiert.
TEAM ist plattformorientiert: Das Unternehmen entwickelt
Family Entertainment-Formate für das Fernsehen. Hierdurch
wird ein breites Publikum angesprochen. Das Verwertungs-fenster
„Kino“, dessen Umsatzpotenzial schwer prognosti-zierbar
ist, bleibt außen vor.
TEAM schafft eigene Rechte: Im Gegensatz zu reinen
Lizenzhändlern produziert TEAM Filme und Serien mit nam-haften
Partnern. Hierdurch macht sich die Gesellschaft nicht
nur unabhänigig von steigenden Preisen beim Lizenzerwerb,
sondern profitiert von dieser Entwicklung. Darüber hinaus
hält TEAM die Rechte an sämtlichen Auswertungsstufen und
-ebenen (Merchandising, Internet).
TEAM produziert budget- und risikoorientiert: Die von
TEAM produzierten Serien liegen grundsätzlich im unteren
2-stelligen Millionenbereich. Der Drehbeginn erfolgt erst,
wenn mindestens 50% des Produktionsbudgets durch
Presales finanziert sind. Darüber hinaus hat die Gesellschaft
sowohl bei der Produktion als auch bei der Distribution wich-tige
Partner, z.B. die Alliance Atlantis Communications Group.
--------------------------------------------------
Die wichtigsten Unternehmens-News seit Listing am Neuen Markt
• Produktion und Vertrieb der ersten Staffel von „Call of the
Wild“, von der TEAM die weltweiten Produktionsrechte
hält. Das Produktionsbudget der 13 einstündigen Folgen
(1. Staffel) beträgt ca. US-$ 10,0 Mio. Die TV-Serie wurde
im Frühjahr 2000 auf dem Discovery-Network-Themen-kanal
„Animal Planet“ ausgestrahlt. 25% der Rechte wur-den
bereits an die australische Produktions- und
Distributionsfirma Scanbox Pacific Ltd. zum Preis von US-$
8,06 Mio. verkauft. Zusätzlich konnte die Serie in Europa,
Lateinamerika und Asien lizensiert werden. Auf Grund des
großen Erfolgs wird eine weitere Staffel mit 13 Episoden
gedreht.
• Lizensierung der Rechte der eigenentwickelten Comedy-Show
„So you think you’re funny“ an Pearson Television
USA. Durch den Verbleib der Rechte bei TEAM wird die
Gesellschaft weitere Lizenzgebühren durch die internatio-nale
Vermarktung einnehmen.
• Ausstrahlung der Science-Fiction-Serie „Total Recall 2070“
auf Pro Sieben. Die Serie erreichte trotz des späten Sende-termins
(22.15 Uhr) im Durchschnitt einen Marktanteil von
10-12%.
• Produktion von 26 halbstündigen Folgen der Serie „Mystic
Journeys“, die im Travel Channel ausgestrahlt wird. Die
Folgen wurden mit digitaler Technik gedreht, so dass sie
auch via Internet verwertbar sind.
• Senderechte für das TEAM-Fashion-Magazin „Destination
Style“ konnten an den Discovery Channel in Lateinameri-ka
sowie an ATV in Hong Kong vergeben werden.
• Zusammenarbeit mit der Investmentbank CIBC World
Markets. Durch diese Kooperation erhält TEAM die Mög-lichkeit,
Finanzierungslücken bei der Realisierung von Film-projekten
zu schließen.
• Abschluss eines mehrjährigen Output-Deals mit dem Pro-duzenten
Gary Hoffmann. Hierdurch ist die Produktion
mehrerer Serien und Fernsehfilme gesichert. Hoffmann
ist ein intimer Kenner des amerikanischen TV-Marktes. U.a.
war er Leiter des FOX Broadcasting Television Movie and
Miniseries Department.
• Erwerb der Rechte an der Unterhaltungsserie „Tutti Frutti“
für den US-amerikanischen Markt.
• Verstärkung des TEAM-Managements durch Alan D. Liker
in den Bereichen Corporate Finance und Recht. Liker beleg-te
seine Kompetenz als Professor der Harvard Law School
und als Vorstandsmitglied der Shaklee Corporation. Dar-über
hinaus war er Gründungsmitglied der First Charter
Bank.
• Neuer Geschäftsführer der TEAM Entertainment Germany
GmbH: Erhart Puschnig wird künftig die Aktivitäten der
deutschen Niederlassung steuern. Als Direktor von RTL
konnte er seine Kompetenz in den Bereichen Sendeleitung
und –abwicklung, Produktion, Akquisition und Vertrieb
unter Beweis stellen.
• Erwerb der weltweiten Rechte an 28 Filmen zum Preis von
US-$ 8,1 Mio. durch TEAM Dandelion. Die Attraktivität
besteht darin, einzelne Filme im Rahmen von Paketen zu
veräußern, um hierdurch einen Mehrwert zu erzielen.
--------------------------------------------------
Finanzanalyse und Bewertung
Bei der Bewertung der Team Communications Group, Inc.
haben wir uns entschlossen, sowohl ein Discounted Cash Flow-Modell
als auch einen Peer Group-Vergleich heranzuziehen.
Das Discounted Cash Flow-Modell
Mit Hilfe des DCF-Modells werden die der Gesellschaft aus
dem operativen Geschäft zufließenden Mittel, die für die
Bedienung der Ansprüche der Kapitalgeber zur Verfügung
stehen, die sogenannten Freien Cash Flows, mit den durch-schnittlichen
gewogenen Kapitalkosten auf den heutigen
Zeitpunkt abgezinst. Unser auf drei Stufen basierendes Mo-dell
zeigt in Phase I von uns als realistisch eingeschätzte de-taillierte
Planungen auf.
In der Phase II schwächt sich das dynamische Wachstum kon-tinuierlich
bis auf ein Umsatzwachstum von 2% in 2013 ab.
In Phase III – dem Terminal Value – haben wir eine 1-prozen-tige
Wachstumsrate unterstellt.
Trotz der konservativen Annahmen bezüglich des DCF-Mo-dells
und ohne die Berücksichtigung liquider Mittel der Ge-sellschaft
kommen wir auf einen Unternehmenswert von
US-$ 291,0. Dies entspricht einem fairen Wert je Aktie von US-$ 20,74.
Multiple-Bewertung
Innerhalb des Peer Group-Vergleichs haben wir verschiede-ne
Multiplikatoren ermittelt, die auf folgenden Größen ba-sieren:
• Kurs/Gewinn-Verhältnis
• Enterprise Value/Sales
• Enterprise Value/EBIT
...
..
Wert je Aktie in US-$ 29,73
--------------------------------------------------
Umsatzplanung 2000
Die Umsatzzahlen für das laufende Jahr ergeben sich aus dem
Verkauf verschiedener Serien und Fernsehfilme in die USA
und das europäische Ausland. TEAM plant, insgesamt sieben
Serien zu lizensieren, die rund 48% der Umsätze ausmachen.
Der angenommene Verkaufspreis (USA) beträgt zwischen US-$
45.000 und US-$ 210.000 pro Episode. Der Vertrieb von Fern-sehfilmen
wird rund 22% zum Umsatz beitragen, gefolgt von
Library-Sales (18%) und Produktionen vom TEAM Dandelion
(7%) und TEAM Germany (5%). Die Planzahlen beinhalten
keine Akquisitionen, sondern spiegeln Projekte wider, die
durch den Mittelzufluss aus dem Börsengang sowie dem lau-fenden
Cash Flow realisiert werden.
Umsatzstruktur 2000
--------------------------------------------------
Fazit
Die TEAM Communications Group, Inc. verfügt bereits jetzt
über ein Geschäftsmodell, das von den am Neuen Markt ge-listeten
Mitbewerbern sukzessive aufgebaut wird: Eigen- und
Koproduktionen für den internationalen Markt. Die Attrak-tivität
dieser Strategie sehen wir darin, dass TEAM als Rech-te-
Schaffer die gesamte Wertschöpfungskette kontrolliert.
Das Unternehmen profitiert direkt von der steigenden Nach-frage
nach Content. Als weiteres Asset ist die Präsenz in den
weltweit wichtigsten Märkten, Nordamerika und Europa zu
sehen, die eine effiziente Distribution erlaubt.
Wir sehen das 12-Monats-Kursziel bei € 23,-. Auf diesem Ni-veau
ist der Titel noch immer moderat bewertet und bietet
weiteres Aufwärtspotenzial.
CIBC World Markets Inc., P.O. Box 500, 161 Bay Street, BCE Place, Toronto, Canada M5J 2S8 · (416) 594-7000 CIBC World Markets Corp., One World Financial Center, New York, NY 10281 · (212) 667-7000 (800) 999-6726 Equity Research
Investment Conclusion
· We are initiating coverage of TEAM Communications Group with a Buy rating.
· TEAM is an independent TV production company that typically develops programming ideas with niche cable networks in mind. These networks are looking for original programming at a reasonable cost that plays well to their specialty audiences.
· By targeting this market, TEAM limits its financial exposure to any one show and avoids competing with large media conglomerates. Another plus: we believe demand for cable programming is poised to accelerate due to the formation of new cable networks (encouraged by cable system upgrades which have increased channel capacity).
· Since raising $32 million of equity in November, TEAM has laid the groundwork for an aggressive expansion. It has added two seasoned TV executives to its management team, opened a German operation, arranged for representation by CAA, and formed exclusive deals with outside producers.
· These changes have energized the organization and accelerated the pace of development activity.
· TEAM’s future challenge is to secure firm orders for several of the shows in active development so that it can begin the production process. If successful, its EPS should grow dramatically in 2001.
· Our target price of $12 is predicated upon a P/E of 13X our 2001 estimate of $0.90. This 13 multiple is a 15% discount to our long-term growth forecast of 15%.
· We think the stock should head toward that price as orders for new shows are announced, because this would improve 2001 earnings visibility. Other potential catalysts include the successful negotiation of acquisitions that are accretive to EPS—something management is actively pursuing.Entertainment Sharon Williams, New York (212) 667-8096 Bronson Byi, CFA (212) 667-8121 July 31, 2000
TEAM Communications Group Initiating Coverage With A Buy
Rating: BUY TMTV-OTC (7/31/2000): $6 13/16 52-week Range: $19 1/2-4 1/16 Shares Outstanding: 17 Million Float: 10.6 Million Shares Market Capitalization: $116 Million Dividend/Yield: Nil/Nil Fiscal Year Ends: December Book Value: $3.46 per Share 2000E ROE: 12.0% LT Debt: $0 Preferred: Nil Common Equity: $57 Million
Company Description: TEAM Communications Group is an independent TV production company headquartered in Los Angeles. It has established production and distribution capabilities in the UK and is building a presence in Germany.Earnings per Share 1999 ................................................... $0.41 2000E................................................. $0.41 2001E................................................. $0.90
P/E Ratio 1999 .................................................. 16.6X 2000E................................................ 16.6X 2001E.................................................. 7.6X
00-7224 © 2000
CIBC World Markets TEAM Communications Group
CIBC World Markets Corp., or one of its affiliated companies, makes a market in the securities of and has performed investment banking services for this company.
This report is issued by (i) in the US, CIBC World Markets Corp., a member of the NYSE and SIPC, (ii) in Canada, CIBC World Markets Inc., a member of the IDA and CIPF, and (iii) in the UK, CIBC World Markets International Ltd. or CIBC World Markets plc, each of which is regulated by the SFA. Any questions should be directed to your sales representative.
Every state in the United States, province in Canada and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, some of the securities discussed in this report may not be available to every interested investor. Accordingly, this report is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. No part of any report may be reproduced in any manner without the prior written permission of CIBC World Markets.
The information and any statistical data contained herein have been obtained from sources which we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. A CIBC World Markets company or its shareholders, directors, officers and/or employees, may have a long or short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. A CIBC World Markets company may have acted as initial purchaser or placement agent for a private placement of any of the securities of any company mentioned in this report, may from time to time solicit from or perform financial advisory, investment banking or other services for such company, or have lending or other credit relationships with the same. The securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or income they produce may fluctuate and/or be adversely affected by exchange rates. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice; as with any transaction having potential tax implications, clients should consult with their own tax advisors. Past performance is no guarantee of future results.
For private clients in the UK: Investors should seek the advice of an investment advisor if they have any doubts about the suitability of an investment.
Although each company issuing this report is a wholly owned subsidiary of Canadian Imperial Bank of Commerce (“CIBC”), each is solely responsible for its contractual obligations and commitments, and any securities products offered or recommended to or purchased or sold in any client accounts (i) will not be insured by the Federal Deposit Insurance Corporation, the Canada Deposit Insurance Corporation or other similar deposit insurance, (ii) will not be deposits or other obligations of CIBC, (iii) will not be endorsed or guaranteed by CIBC, and (iv) will be subject to investment risks, including possible loss of the principal invested. The CIBC trademark is used under license.
Ó 2000 CIBC World Markets Corp. and CIBC World Markets Inc. All rights reserved.
INVESTMENT THESIS
We are initiating coverage of the independent television production company, TEAM Communications Group, with a Buy rating. TEAM was founded by Drew S. Levin in February 1995. Since its August 1998 IPO (which raised $7 million for TEAM), management has delivered strong revenue and earnings gains. Indeed, EPS rose 105% in 1999 fueled by 77% revenue growth.
This growth was driven largely by TEAM’s increased financial flexibility. Indeed, after the IPO, TEAM was able to retain more of the worldwide rights for the programs in its lineup and to expand its geographic footprint with the acquisition of Dandelion in the U.K. and the formation of Team Dandelion LTD headed by industry veteran Noel Cronin. In addition, TEAM’s programming library also posted sharp sales gains.
TEAM Has Laid The Groundwork For Aggressive Expansion
Management turned to the public markets again in November 1999. This time, though, to Germany’s Neuer Markt, where it raised $32.4 million (net proceeds). Since then it has laid the groundwork for an aggressive expansion of its TV production operations: · TEAM hired several seasoned TV executives including James Waldron (as President of TEAM Entertainment) and Philippe Perebinossoff (to run its long-form division). Both bring a wealth of experience that should open doors for TEAM. Waldron was a top agent at Creative Artists Agency (CAA) where he headed international and first-run programming and oversaw the packaging of shows for cable networks. Perebinossoff was head of development and production for ABC’s TV Movie group for the past eight years. · TEAM opened an operation in Germany—Europe’s largest TV market—and named Erhart Puschnig to run it. Puschnig is well regarded in European media circles as a major force behind the launch (and ultimate success) of Germany’s most popular commercial network, RTL+. At TEAM he is charged with creating programming for 3 international markets, as well as managing and developing strategic partnerships with European broadcasters and media companies. · TEAM arranged for exclusive representation by CAA, one of Hollywood’s top three talent agencies, which gives them greater access to CAA’s literary properties as well as the writers, directors, and actors that CAA represents. This should help TEAM produce shows with greater drawing power more quickly as TEAM is now one of only a handful of production companies that receive CAA’s priority attention. · TEAM also formed exclusive deals with outside producers of television movies, mini-series and dramatic series. These include Gary Hoffman (former head of Fox Network movie division) and Neil Russell (former President of Carolco Television Productions and Multimedia, Inc.). We believe TEAM is close to signing a third similar deal.
TEAM’s Challenge Is To Move Shows From Active Development Into Production
These changes have brought a high level of energy to TEAM and accelerated the pace of development activity. TEAM’s challenge going forward is to move as many TV shows as possible from active development into production. This typically happens after a domestic cable network or European network commits to air programming that TEAM has pitched to them. In the case of a TV series, TEAM usually insists upon a minimum order of 13 episodes and a license fee that covers 40%-60% of the series production cost. In return, the buyer gains the exclusive right to transmit the programming 10-12 times over a 3-6 year period. TEAM then looks to cover the rest of the cost (and ultimately to turn a profit) by selling the programming in foreign markets and eventually as reruns domestically. TEAM also supplements its internal production capabilities by purchasing partial rights to outside productions.
With Each Show’s Downside Risk Limited…
If TEAM successfully increases the number of shows it produces, we believe its earnings power should grow dramatically. In sharp contrast to the high-stakes game of movies and prime-time network TV programming, losses from disappointing programs produced in this manner are minimal. Therefore, we believe the risk of earnings being pressured while output increases is limited.
In fact we think most of the TV programs that TEAM has created have produced a profit. That’s because production budgets are modest (and easy to control), and marketing costs are borne by the networks that license the shows. Of course programs that deliver sizable audiences and remain on the air for several years ultimately generate far greater profits than those that are cancelled after the first 13 episodes. But even those that are cancelled quickly can sometimes generate small profits.
…EPS Should Grow Dramatically When The Production Slate Increases
EPS declined $0.07 in the March quarter and is likely to fall $0.04 in June. This first half pressure was due solely to the higher number of shares outstanding. Absent any accretive acquisitions, we forecast flat EPS in the September quarter. However, management expects EPS growth to return by 4Q00. See Exhibit 5 for details.
Next year, we believe EPS could grow dramatically as the increased development activity pays off in the form of a larger production pipeline. Indeed, we project 119% growth to $0.90 per share in 2001. This is not unprecedented; EPS jumped 105% in 1999. To reach our 2001 forecast requires that Call of The Wild is renewed, features from two recently acquired libraries are packaged and sold domestically, and three new series and two new movies-of-the-week are placed on the air in the U.S. TEAM must also successfully sell these programs (and a few others for which it may purchase the international rights) in foreign markets. We think this is achievable given TEAM’s active development pipeline, the large number of potential domestic buyers, and its capable international sales team.
In the three years following 2001 we think 15% CAGR growth is possible. Management hopes to meaningfully exceed this rate. In fact, it is targeting 25% EPS growth. However, we prefer to wait for better visibility—in the form of firm orders for its programs, the active production of them, and/or concrete ratings results—before getting more aggressive with our forecasts.
Accretive Acquisitions Could Provide Additional Upside
It is important to note that our EPS forecasts do not include acquisitions. The few analysts who already follow TEAM’s stock assume management can negotiate and close several accretive deals in 2000 and 2001. Certainly, management views acquisitions as a source of future earnings growth. When considering acquisitions, it looks for independent production companies with positive cash flow from operations, commercially viable TV programming libraries, and reasonable growth opportunities (that could be pursued with additional financial support from TEAM).
TEAM is beginning to build a good acquisition track record. In October 1999 it acquired U.K.-based Dandelion Distribution, Ltd. This acquisition brought TEAM a library of 3,000 hours of programming, an experienced European sales force, and a strong production slate. The deal was immediately accretive to EPS. It also recently purchased the Marquee library (29 network movies from the 1970s and 1980s) which we expect to contribute solidly to 2000 and 2001 EPS.
We share management’s enthusiasm for growth via acquisitions as we believe many independent producers are financially constrained and would benefit from being part of an organization with a healthy balance sheet and a good distribution arm. Therefore, it seems likely that TEAM could strike accretive deals. However, such deals are inherently difficult to forecast, and we can find no logical way to quantify the upside or pinpoint the timing. Hence our decision to exclude acquisitions until they are announced.
Our Target Price Is $12
As shown in Exhibit 1, TMTV currently trades near the mid-point of its historical P/E range based on trailing-twelve-month earnings. Given the early stage of the company’s development and the limited research coverage to date, we don’t believe this historical range (6X to 53X trailing EPS) is particularly meaningful.
Our target price of $12 is predicated upon a P/E of 13X 2001. This is a 15% discount to the long-term EPS growth rate we forecast. It translates into a 36% discount to the P/E on the S&P 500 (23.5X).
Exhibit 1. Historical P/E for Trailing EPS
$0.22 $0.31
$0.16 $0.18 $0.31 $0.40
$0.33
$0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45
Jul-
98 Aug-
98 Sep-
98 Oct-
98 Nov-
98 Dec-
98 Jan-
99 Feb-
99 Mar-
99 Apr-
99 May-
99 Jun-
99 Jul-
99 Aug-
99 Sep-
99 Oct-
99 Nov-
99 Dec-
99 Jan-
00 Feb-
00 Mar-
00 Apr-
00 May-
00 Jun-
00 Jul-
00
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 LTM EPS, Diluted P/E
Source: Company data; CIBC World Markets.
The discount reflects two harsh realities of the independent TV production business: (1) the low earnings visibility (firm deals for new productions are often signed only a few months before they generate EPS), and (2) the market power of its key competitors (who are vertically-integrated and can produce programming for their own distribution systems). TEAM’s small market capitalization ($116 million) and light trading volume (averages only 97,000 shares a day) also seem likely to hold the stock’s multiple back.
We believe the stock should head toward our target price as earnings visibility improves. Therefore, announcements of firm orders for new shows are one of the keys to future stock price action. Other potential catalysts include the successful negotiation of acquisitions that are accretive to EPS and well structured output deals. If, over time, TEAM can demonstrate an ability to regularly place new shows on the air and supplement this production activity with accretive acquisitions an argument for multiple expansion can be made.
TEAM’s multiple could also benefit from a successful expansion of its programming capabilities in Germany. Indeed, Neuer Markt investors place healthy multiples on German programming companies, with many trading at more than 30X 2001 EPS estimates (in the Neuer markt). This likely reflects a perception that programming growth opportunities are greater in Europe than in the U.S.
Longer term we believe TEAM itself should be viewed as a takeover candidate. Larger media companies have shown an appetite for buying independent TV programmers that build significant libraries. The long list of TV acquisitions includes: Spelling (to Viacom), King World Productions (to CBS), All-American TV (to Pearson TV), Pearson TV (to Bertelsmann), Robert Halmi (to Hallmark), and Rysher (to Paramount). However, we believe this is unlikely to happen until TEAM is considerably larger. At its current size, it is simply too small to make a difference to most larger players—and few mid-sized media companies exist.
Potential Risks
In addition to the risk we discussed earlier—TEAM is unsuccessful moving shows from active development into production and therefore cannot deliver the EPS gains we forecast—we see two others: 1. Market related volatility. TEAM’s small market capitalization and light trading volume (as well as price volatility in the Neuer Markt) subject its stock to potentially large price moves even when its fundamental outlook is unchanged. 2. Disappointing acquisitions. As we noted earlier, management views acquisitions as a source of future earnings growth and is actively pursuing them. It is possible, however, that future deals prove dilutive to earnings and the stock could come under pressure. We think this risk is low given TEAM’s acquisition objectives: to find companies with positive cash flow from operations, commercially viable TV programming libraries, and reasonable growth opportunities that could be pursued with additional financial support from TEAM.
KEY FACTORS FOR LONG-TERM SUCCESS
Television programming is not an easy business. It requires a large upfront commitment of capital (to produce the shows), yet the audience’s reaction is difficult to forecast in advance, and returns are often spread out over a several year period (as the shows are sold in foreign markets and later as reruns throughout the world). Few small production companies have the financial resources to fund several simultaneous shows, and many fold after hitting a prolonged period of disappointing releases. Additionally, the media landscape is populated with large, vertically integrated companies (like Viacom/CBS, AOL Time Warner, Disney, and News Corp). These companies increasingly create programming for their own distribution platforms, which reduces the programming opportunities for independent companies.
On the other hand, it’s not impossible for an independent production company to operate in this environment if it targets the right sectors of the TV programming market. This is something we think TEAM’s management has done successfully. It typically develops programming ideas with niche cable networks in mind. These networks are looking for original programming at a reasonable cost that plays well to their niche audiences.
By targeting this market, TEAM preserves its capital and lowers its financial exposure to disappointing shows. At the same time, it avoids competition from large media conglomerates who virtually ignore this market because the profit potential from hit shows on niche cable networks is dwarfed by that of primetime network TV. Furthermore, the increase in channel capacity of most domestic cable operators during the past several years has stimulated the formation of new cable networks. These new networks should ultimately increase the size of the programming opportunity.
Exhibit 2. Most of TEAM’s TV Shows Target Niche Cable Networks
Titles Produced By TEAM Communications Group
(distributor shown in parenthesis)
TV Series
Water Rats Destination: Style (The Travel Channel)
Public Enemies Strange Universe (in partnership with United/Chris-Craft stations)
Scenic Rail Journeys (PBS) Simply Style (The Learning Channel)
Amazing Tails (Animal Planet) Total Recall 2070 (Showtime and Syndication)
Conversations With Remarkable People (The Wisdom Network) The Call Of The Wild (Animal Planet)
The World's Most Mysterious Places (The Travel Channel)
TV Movies-Of-The-Week Earthquake in New York (Fox Family Channel)
Source: Company data; CIBC World Markets.
In addition to targeting an appropriate niche, other key factors for long-term success in the TV programming business include: (1) developing a steady stream of creative ideas, (2) establishing good relationships with key buyers, (3) providing in-house production expertise, and (4) maintaining financial discipline. We think Levin is building TEAM with these factors in mind.
The following two sections provide background on TEAM’s management and offer a glimpse into the company’s development process. We think they highlight the sound relationships that TEAM has begun to build with the buying community. In our opinion, these relationships are perhaps the most important link in the value-creation chain for an independent production company. Indeed, a programmer’s chance of success improves dramatically if it is in active dialog with several buyers, is aware of the holes in their programming schedules, and knows the type of show with which they would like to fill those holes.
MANAGEMENT BACKGROUND
TEAM’s Chairman and CEO, Drew S. Levin, is actively involved in the operation of the company including, at times, in the creative process. His relationships with development executives at the cable networks and within the production community are also valuable to TEAM.
Prior to forming TEAM, Levin spent nearly 20 years in the TV business. He produced and developed TV series such as Hollywood Stuntmasters, FX Masters, and Superstars of Action for Discovery; Shadow Theater for USA Network; and over 200 hours of reality-based and instruction series for The Learning Channel, Discovery Channel and PBS.
Levin also created and produced the Emmy Award winning series, Future Quest, starring Jeff Goldblum, for the PBS Network.
In May, Levin appointed James Waldron as President of TEAM Entertainment. The fit seems natural to us. Waldron joins TEAM from CAA where he headed the agency’s international programming and first-run syndication arm and oversaw deals that were packaged for cable networks. Together Levin and Waldron have over 4,000 hours of original production experience.
Key members of management with development, production, and sales responsibilities include: · In the U.S., TEAM has three divisional heads: Declan O’Brien, who runs the drama series division; Jane Sparango, who runs the reality division; and Philippe Perebinossoff, who runs the long-form TV movie division. These executives bring a combined experience of 60 years in the TV business to TEAM. · In Germany, TEAM recently appointed Erhart Puschnig, the former head of programming for RTL+ Network, as CEO of TEAM Entertainment Germany. Puschnig’s programming expertise is well known in Europe. He was the visionary who thought to program the new network’s prime-time lineup with shows from the Fox Television Network (Married with Children, Beverly Hills 90210, The Simpsons). He also acquired the WCW Championship Wrestling programs and the NASCAR races. These programming acquisitions catapulted RTL+ to the top of the commercial TV ranks in Germany. · In London, Noel Cronin heads up TEAM Dandelion. Cronin founded Dandelion Distribution, has a strong track record as a producer and distributor in Europe, and has a first-hand understanding of the European distribution market. · Larry Friedricks and Paula Fierman head up TEAM’s international sales divisions. They have a combined experience of 50 years, heading up the international distribution arm of several companies, including Kushner Locke, Fries Entertainment, and Jones Entertainment.
FOUR PROGRAMMING CASE STUDIES
The following four case studies provide insight to the TV production process at TEAM. They also demonstrate TEAM’s financially disciplined approach and its good relationship with key buyers. Recall that these are two factors we consider crucial to long-term success.
· Amazing Tails – A Highly Profitable Show Creatively Financed. When the cable network Animal Planet was launched four years ago, TEAM approached them with an idea for an animal- and people-friendly series. Animal Planet liked the idea, but was still building a subscriber base and therefore not flush with cash to spend on programming. To move the project along, Levin approached The InterPublic Group with an idea of targeting this reality-based project to a specific advertising buyer. Together they took the concept to a senior media buyer from McCann Erickson, who represented Friskies Pet Food. They liked the series enough to negotiate a comprehensive media buy for Animal Planet. This triggered a $70K per episode license fee from Animal Planet for a three-year exclusive windows. The cost of production: only $44K per episode. Gross to date of international rights exceeds $2 million. TEAM produced 48 half hour episodes of this series. Animal Planet did not renew beyond the 1998 season.
· Total Recall 2070 – Expensive By TEAM Standards, But Still Profitable. Levin had been following the success of the movie for many years and felt Carolco had not fully exploited the brand. Therefore, TEAM attended an auction held during the liquidation of Carolco Pictures and acquired the rights to create a spin-off from the movie for the TV market. For this right TEAM paid $1.2 million. Levin’s instincts were right. Indeed, he found a great interest when he pitched his plan to produce 22 one-hour episodes for weekly syndication. We believe PolyGram paid $200,000 per episode for US distribution and syndication rights; Showtime paid $175,000 per episode for a pay-TV window; Miramax paid $119,000 per episode for worldwide video rights; and Alliance Communications paid $250,000 for Canadian distribution rights and worldwide co-production rights. Together TEAM and Alliance pre-sold Canal Plus (France), Pro Sieben (Germany and Japan), and BSkyB (UK). In total, we believe the first season grossed over $27 million. The show has not been renewed for a second season. However, with a cost of production approximating $24 million we believe TEAM booked a small profit on the deal.
· · The World’s Most Mysterious Places – Typical Reality Show For TEAM. This project was developed with Travel Channel for its new prime-time schedule and is a good example of a ‘typical’ reality-based series for TEAM. Travel Channel is owned by Discovery, for which TEAM is a fairly regular supplier. The Travel Channel approached TEAM seeking its ideas for a few projects and TEAM pitched an idea about mysterious and unusual places across the world (Stonehedge, etc.). The Travel Channel was interested enough for TEAM to update the initial six page treatment with a full 26-episode outline. Travel Channel then agreed to pay a license fee for domestic rights for a 3-5 year window that covered approximately 55%-60% of the budget. After a final contract was signed, TEAM began shooting the series. The series is now virtually completed. Generally TEAM sells the first cycle (1-3 years) of a reality series like this one for $40K-$75K per half-hour in the foreign market. Therefore, by the time it’s done with the first cycle, the series should already be profitable. Furthermore, TEAM still has worldwide rights in perpetuity, not to mention a possible renewal of individual episodes. The show premieres on July 18.
· Call of the Wild – The Latest Success For TEAM. This series has just been renewed for a second season of 13 one-hour episodes, following an exciting launch on Discovery’s Animal Planet. Team approached Clark Bunting, Senior Vice President and General Manager of Animal Planet, to discuss the possibility of airing a dramatic series and TV movies (something Animal Planet had not yet scheduled on its network). Clark went to his senior management in July 1998 and they expressed great interest in a one-hour series. TEAM then developed a dramatic series that they simply could not resist based on the well loved Jack London novel, Call Of The Wild. The original script was written by the noted theatrical writer, David Fallon, who created the two White Fang movies for Disney. TEAM negotiated a license fee based upon a minimum of 13 (up to 26) one-hour episode commitment. The license fee covered approximately 26% of the production cost and TEAM’s Canadian production partners in Vancouver guaranteed another 30% (for Canadian rights). TEAM completed the first 13 episodes to rave reviews and is beginning to produce the second thirteen. We understand foreign sales are also going well.
CURRENT PRODUCTION PIPELINE
Shows currently being produced by TEAM include two of the projects we highlighted earlier: Call Of The Wild (a drama series for Animal Planet), and The World’s Most Mysterious Places (a reality series for Travel Channel). In addition, TEAM is producing Weird World (six specials for The Learning Channel). We expect the level of production activity to expand dramatically over the next year.
As we noted earlier, TEAM has set the foundation for expansion in its TV business by hiring several talented new executives, negotiating exclusive deals with outside producers, and opening production operations in Europe. These changes have brought a high level of energy to TEAM and resulted in a far more active development slate.
We understand that management is currently working with 84 distinct projects (drama series, reality series, and TV movies) and that 30 of these have moved into active development: · The reality-series department has 15 shows in active development. These shows primarily target cable networks such as Animal Planet, The Travel Channel, Fox Family Channel, and The Learning Channel. A few also target broadcast station groups. · TEAM has 8 drama series in active development and several deals appear close to being signed. The drama series also target cable networks such as FX, The Nashville Network, TBS, SCI FI Channel, and Fox Family Channel. For a few of its higher-budget concepts, TEAM is looking to bring in a domestic syndication partner and together target TV station groups. · The long-form department has 7 projects in active development for cable networks such as HBO, Showtime, Starz/Encore, A&E, and TNT. These shows can also be pitched to broadcast networks where they would likely be aired as movies of the week. Another twelve projects are in earlier stages of development with scripts (or stories upon which script would be based) being read by potential buyers.
More specifically, we believe TEAM is close to firm production/distribution deals on several projects. These include a TV movie based on the Lufthansa heist at Kennedy airport (through its newly formed relationship with Gary Hoffman), a feature-quality TV movie based on the life of James Dean, a weekly series entitled Spartacus (for a cable network or in first-run syndication), a drama series aimed at teenagers (called Vampire High), and a new 13-part drama series for MTV Networks (which it would distribute outside of North America)
FINANCIAL OUTLOOK
After delivering a two-fold increase in EPS in 1999 (to $0.41 from $0.20 on a diluted basis prior to extraordinary items), we think TEAM will post flat EPS this year of $0.41. This pause in EPS growth is not tied to a slowdown in programming momentum. Indeed, we think revenue should jump 143% and operating income should grow 120% in 2000. Instead, as previously stated, the flattening of EPS results is due to a meaningfully higher share count (primarily from the offering in Germany).
Absent Acquisitions, EPS Should Flatten This Year
EPS could top our estimate if management successfully negotiates and closes an acquisition, something we think it has been seriously pursuing. However, deals of this nature are inherently difficult to forecast and we can find no logical way to quantify the upside. Therefore, we plan to wait for deals to be announced before adding them to our forecast.
But Growth Prospects For 2001 Look Robust
As we noted earlier, following the $32.4 million capital infusion in late 1999, TEAM has taken steps to aggressively expand its programming operations. Most of these steps are aimed at increasing the quality and quantity of programming in development. The end game, of course, is to lift revenue by successfully placing more shows on the air. We note, however, that it takes time to find good projects, move them into development, build interest in the buying community, sign deals, and place the shows into production.
We think all of this activity should start to pay off by late 2000/early 2001, when we expect the company to announce the start of several new projects. Indeed, we forecast a jump in EPS to $0.90 from $0.41 in 2001. This should be driven by an increase in the number of TEAM TV shows entering production (following successful pitches to the buying community). Also likely to help lift earnings is an effort on TEAM’s part to seek out and purchase more foreign rights to TV shows that are created by others. This is made possible by last October’s Dandelion acquisition which provided TEAM with an established European sales force. See Exhibit 3 for details.
New Production Revenue Is Key To 2001 EPS
Although it is impossible to predict which projects TEAM will ultimately produce in 2001, we believe a reasonable production assumption is that TEAM gets orders for: · another 26 episodes of Call Of The Wild (which also sell well overseas), · one new reality series (or another season for Mysterious Places), · two new drama series, · and two movies-of-the-week.
We also assume TEAM picks up foreign rights to two movies-of-the-week and one first-run drama. In addition, we believe TEAM plans to sell a package of 56 recently acquired movies-of-the-week and features to domestic cable networks. Under this scenario—or one that is similar—we believe TEAM can reach our revenue and EPS targets.
At this time, TEAM has firm orders for some, but not all, of these shows. Therefore, one could argue that visibility for 2001 EPS is low. However, the programming library sale that we discussed earlier improves the visibility somewhat. And TEAM’s robust development activity (which we detailed in the section entitled “Current Production Pipeline” on pages 9-10) gives us additional confidence.
Balance Sheet Healthy
We believe TEAM’s balance sheet is healthy enough to finance this aggressive production schedule. At the end of March, TEAM had $22.5 million of cash and only $7.6 million of debt. Its equity capital totaled $57.4 million. Although it is difficult to precisely pinpoint cash needs for future production, we believe TEAM will not burn through this cash position until mid 2001. Additionally, we believe TEAM can borrow against its license-fee commitments which adds tens of millions of dollars to its borrowing capacity. See Exhibit 4 for details.
A Quick Look At The Cost Side Of The Equation
The accounting standards of small programming companies got a bad reputation in the investment community in the late 1980’s/early 1990’s. The problem: GAAP requires that programmers match a project’s cost to its estimated lifetime revenue. Therefore the more optimistic a programmer’s estimate for revenue in future years, the fewer costs that programmer has to expense now. After a couple of small public companies ‘abused’ this matching principal and held reported costs artificially low, investors have joked that programmers can report profits until they file for bankruptcy. Programming companies can also capitalize a large percentage of their overhead (and amortize it over the life of the programming being produced).
In response to this potential issue, we note that accounting for programming costs is not a science. In the past some companies have been far too liberal with their assumptions, and investors have been burned. However, this is more likely to arise as an issue in the high-budget world of movies and network TV shows—not the more modestly budgeted TV business within which TEAM operates. Additionally, we believe TEAM’s financial staff, led by an ex Arthur Andersen manager Timothy A. Hill, is fairly conservative. We believe it forecasts a gross margin of 20%-30% on its average early-stage TV series, which is conservative relative to its historical experience.
Please see Exhibits 3-4 for our forecasts on an annual basis through 2001, and Exhibits 5- 6 for forecasts on a quarterly basis this year.
Our quarterly EPS estimates are shown below.
1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Year
1999 Actual $0.09 $0.13 $0.14 $0.04 $0.41
2000E Current $0.02A $0.09E $0.14E $0.16E $0.41E
2001E Current --- --- --- --- $0.90E
