What Im Watching - CTC Media (CTCM)

Wanted to make a quick post on a stock Im currently researching...

CTC Media (Nasdaq: CTCM)

This is a Russian media company that trades on the Nasdaq. It originally came on my radar a few weeks ago and it piqued my interest with the whole crisis in Ukraine. The stock has, like most others that are connected with Russia, taken a beating over the last couple months. As I stated in my first post, I like to look where the general opinion is negative - stocks that have been killed for whatever reason as I believe it is inherent in human nature to be irrational..Mr. Market continues to be relevant..

CTCM owns and operates several TV channels in Russia as well as one channel is Kazakhstan. They have been profitable and pay a hefty dividend with a yield of over 7% at the time of this writing. It certainly looks cheap on the face of it.

I will (hopefully) provide a fuller analysis soon but as of now I just wanted to highlight a few issues that have jumped out at me from reading the latest 10K and earnings call transcripts.

1) As Russia transitions to digital from analog, it is proceeding in three waves. Two of CTC's channels were included in the second wave. The third wave of channels included in the changeover has yet to be announced. CTC's 3rd Russian channel Peretz, has yet to be named.

Peretz currently has a penetration rate of roughly 85%. If it is included in the 3rd wave transition, it will only have have the potential to reach a 65% rate. If it isnt included, CTC will have to find other, potentially costly ways to distribute Peretz. If this happens, the penetration rate could drop even further than the already reduced 65%.

Recalling from memory, I believe over $50 million of goodwill is attributable to Peretz, so a significant impairment may be in order when I conduct a reproduction value analysis.

2) CTC seemingly must deal with unfair competitors. The two major Russian media companies are primarily state owned. In the most recent 10K, CTC mentions that these competitors have access to the latest offerings far in advance which puts them at a disadvantage. It seems to me that it would be hard to gain any market share when state run media front runs and can solidify their position by offering the newest releases before anyone else.

3) Another concern that has jumped out at me and which I will research further is the conflicts that are possible in management. As mentioned in the 10-K, there are numerous board members and large stockholders who are in some way affiliated with other Russian media companies. This is something I will investigate further.

On the plus side, GMO owns a sizeable amount of CTCM stock so I am encouraged that if a heavy hitter like GMO is willing to invest there must be some good reasoning involved.

More to follow, happy investing!
Ben

Welcome

Welcome to Thoughts on Value.


Some background..

My name is Ben. I have a degree in finance and have passed the first examination of the CFA program. I plan on using this blog to share my thoughts, analysis, and other musings on the market and investing.

I definitely have a value bias. My beliefs have thus far been shaped by numerous well known investors including Glenn Greenberg, Seth Klarman, Michael Burry, and Bruce Greenwald as well as the usual names of Graham and Buffett.

Margin of safety is of course the primary objective when searching for investments. I prefer a more concentrated portfolio as I feel that leads to better knowledge of each security you hold and if done correctly, provides the possibility of reducing risk while also allowing for outperformance against benchmarks. I think that being a value investor and being a contrarian go hand in hand, so I like to look for investments that are out of favor, beaten down, and ignored. I primarily invest in equities but am delving more into fixed income in an effort to expand my investing universe.

I am sure I will share more as  I come across other ideas, and am happy to discuss further any topics that are presented here.