Entercom Communications Corp. (ETM)

[realfast95]

Entercom Communications: Easy Listening
Jul. 20, 2020 4:48 PM ET|

https://seekingalpha.com/article/4359467-entercom-communications-easy-listening?utm_campaign=twitter_automated&utm_content=article&utm_medium=social&utm_source=twitter_automated


Summary

Things were bad but look like they are slowly getting better.

COVID-19 forced cost cuts but those cuts will carry forward after COVID-19.

ETM is the second-largest producer of podcasts.

Financial metrics should improve throughout the remainder of the year.

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Entercom Communications (ETM) is one of the largest radio broadcasting companies in the country. Yes, radio is still alive and well with podcasts, sports coverage, and local news outlets besides other things.

And here's what ETM does:

Radio Broadcasting Stations
Advertising
Arts
Entertainment and Recreation
Podcasting

Things were going extremely well before COVID-19 but dropped off rapidly beginning in March.

In January and February, sales were up 7% year over year but dropped 22% in March. April was even worse as local businesses and professional sports dropped advertising. However, according to management, things are picking up.

Here are 5 reasons to buy ETM now.
1. Things Were Bad But Look Like They Are Slowly Getting Better

CEO David Field:

Current business conditions have sought a bit after the tsunami of closures and cancellations that occurred in March and the first half of April. While there are no guarantees on the trajectory of our national recovery in these unprecedented times, April certainly appears to be the bottom. May is a little better than April, and June is trending somewhat better than May.

Sounds like down big but on the way back. It would make sense as businesses and people frequenting those businesses get back to normal, so would ETM revenues.

As might be expected, news radio flourished with the constant drumbeat of COVID-19 news both good and bad. This is shown by huge increases in listeners recently.

Entercom is the nation's leader in local radio news and I am particularly proud of the great work our local news teams are doing across the country. Ratings were up significantly, including a 56% increase among adults 25-54 at KNX in Los Angeles, 63% at WBBM in Chicago and 100% at 1010 WINS in New York.

That shows the power of radio during crises.
2. COVID-19 Forced Cost Cuts That Will Carry Forward After COVID-19

Operating expenses were cut by $80 million in the second quarter and ETM expects $150 million for the year.

Richard Schmaeling - Chief Financial Officer:

Adding it all up, and looking specifically at the second quarter, we expect that our cash operating expenses fixed plus variable will be down year-over-year by over $80 million.

We executed a series of actions expected to reduce our fixed expenses by approximately $150 million over the remainder of this year

3. ETM Is The Second Largest Producer Of Podcasts

Podcasts are becoming the key ingredient in successful digital communications and ETM is one of the biggest and most successful. They actually create a lot of their own content rather than just buying material from other producers.

CEO David Field:

In addition, we are one of the two largest commercial podcast publishers in the U.S., with a rapidly growing business, competing at scale that has grown to 28 million monthly unique listeners worldwide and more than 150 million podcast downloads per month. We focus on premium high-quality content offerings and have distinguished ourselves by the large number of high-quality hits in our portfolio.

This is a valuable and rapidly growing part of digital broadcasting which grew at 44% in Q2 in spite of COVID-19.
4. Financial Metrics Should Improve Throughout The Remainder Of The Year

If April was indeed the low point of the year, then future results should rebound convincingly. We already know that professional baseball and football will be coming back, and I would think college football too.

Then, think of all the businesses starting up again and their need to build revenue back up. Advertising will certainly be one of the prime ways to achieve that goal.

In addition, the time between now and November should be full of political advertising adding about $20 million to revenues in the next few months.

Richard Schmaeling - Chief Financial Officer:

Previously, we stated that we expected our political revenues would be up year-over-year by over $20 million, and we expect about 60% of this revenue will run between September and Election Day.

And, it is expected FCF (Free Cash Flow) should be positive for the year in spite of the pandemic.

And, importantly, 98% of ETM debt is due beyond November 2024, and leverage is well below problem levels giving them more than enough time to recover.

As a result of these transactions, 98% of our debt matures in November of 2024 or later and our first lien leverage at the end of the first quarter was 2.5 times compared to our covenant of four times calculated in accordance with the requirements of our credit agreement. "

5. The Stock Price Has Dropped By More Than 60% In The Last 6 Months

ETM took the full-brunt of the pandemic reaction with thousands of their customers forced to cut back on advertising to help offset their customers' huge losses in revenue and traffic. Now is the time to start building that traffic back up and that should benefit ETM meaningfully over the next 6-12 months. And I fully expect ETM's stock price to reflect that over the same time period.

Conclusion

ETM has done an admirable job dealing with the business problems associated with the pandemic. Cutting expenses, expanding quality podcast material, working with customers even though they may have temporarily cut back, or even stopped buying from ETM, have all enhanced ETM's probability of recovering in full. ETM is a strong buy with a price target of $3 by the end of 2020 and $5 by the end of 2021.

ETM is a buy because it remains a viable, solid company that has dropped too far, too fast. I think they will 'Turnaround' and succeed over the next 6-18 months.

ETM is a buy under $1.50
Risks, Alarm Bells, And Red Flags

One problem with any media-related business is constantly evolving competition from a variety of media sources. It can change in a moment and new sources are constantly being invented.

In a volatile environment like we are facing now, cash is always a viable alternative.

In addition, there could be a recession coming or even a depression according to several economists. That may make profits elusive at best and provide losses at worst.

"Economic data in the near future will be not just bad, but unrecognizable," Credit Suisse economists led by James Sweeney wrote last week. "Anomalies will be ubiquitous and old statistical relationships within economic data or between market and macro data might not always hold... There is no blueprint for the current shock, and uncertainty about the extent of contagion and the economic consequences is overwhelming."