This company, which primarily operates radio broadcast stations, websites, and living events earning revenue from advertising, has been grouped into radio broadcast service sector in video &audio goods and service industry.
It seems that demand for radio advertising of companies in this sector has been weak and declining as indicated by continuingly decreasing local ad revenue of those companies in the past three years.
The decrease in revenue has been hurting profitability of companies and we thus see the cash flow continuingly decrease as revenue and margin went down. To maintain the growth in their cash flow and improve profitability, companies in this sector have tried to sell their low profitable radio stations and acquire high performance radio stations, a strategy, which seems to help slow down the decline in margin and cash flow in the first few of months of 2018.
The typical company in this sector has a gross margin of 19%, a SG&A as percentage of sales of about 7%, and operating margin of 13%.
The typical enterprise price/sales ratio is 25(12 months trailing).
It seems that demand for non-political advertising service of this company has been growing in the past three years (3-6% annual growth) probably as a result of increased digital ad business.
The first quarter of fiscal 2018 compared with 2017(ended Mar 31, 2018)
Net revenue increased about 7% attributable to increase of about 6% in non-political ad revenue.
Fiscal 2017 compared with fiscal 2016
Net revenue decreased about 1.7% attributable to decrease of about 9% in entertainment revenue. Non-political ad revenue increased 4%.
Fiscal 2016 compared with fiscal 2015
Net revenue decreased about 17% attributable to increase in entertainment revenue as a result of acquisition. Non-political ad revenue increased 3%.
Its gross margin (direct costs) has been down to about 19% in 2018 (12 month trailing) due to increased spending in digital operation. With slightly improved SG&A as percentage of sales (5%), we have seen that its operating margin was down to 14% in 2018.
Stock performance
Currently this company has an enterprise price/EBI ratio of about 14(12 month trailing). We think this stock may be undervalued considering that it may start benefiting from its investment in digital business(stable margin and increasing cash flow due to increase in ad revenue).
