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E.W. Scripps Company (The)

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Investment Appraisal
 We believe that investors are focused on the prospect of an economic downturn and the potential impact to the general advertising environment. Many Broadcast stocks, including the shares of SSP, reflect that current sentiment. The SSP shares have declined 45% from highs reached in March, underperforming many of the stocks in the industry, some of which were down a more moderate 10%.The SSP shares typically underperform the industry when it is out of favor. Notably, the shares outperform when the industry is in favor.&nbsp;
Investors should consider that the company has several growth engines. It tends to over index on Political advertising. The company guided Political advertising to be $270 million in 2022, above that of the past Presidential election. Secondly, Retransmission revenues should be strong in 2023, with 75% of its subscribers coming up for contract renewal. But, importantly, the company is a strong play on cord cutting as the leader in free TV with nine National Television Networks that are available Over The Air, OTT and connected TVs. As Figure #1 illustrates, more than 75% of US Television Households had a connected TV. As such, we believe that the company will lead industry growth as economic prospects brighten.&nbsp;
Importantly, the company is lowering its debt. Management guided debt leverage to be at 4 times cash flow by year end. Notably, the company recently received ratings upgrades from ratings agencies. Management indicated that it is on track for debt leverage to be in the mid 3s by year end 2024, roughly in line with its historic range. As discussed later in this report, management indicated that it would like to refinance the debt with Berkshire to allow it to buy back stock and to provide a dividend. Furthermore, the company plans to seek growth through acquisitions.&nbsp;
Finally, we believe that the SSP is trading near recessionary type valuations. Near current levels, the SSP shares trade at roughly 6.7 times enterprise value to our proforma blended 2022/2023 cash flow estimate. Our price target of $30 reflects a target multiple of roughly 9.0 times EV to blended 2022/2023 estimates, or near the average low trading range for the shares.
Meeting Highlights
Moderation in cord cutting? Management indicated that the number of MVPD subscribers was down 5% last year, but that subscribers were actually up in the last quarter. For the trailing 12 months, the number of subscriber decreased 3%.&nbsp;
&#8220;Plus&#8221; fatigue? Management indicated that consumers appear to be having &#8220;plus&#8221; fatigue with the number of streaming options and subscriptions that are approaching the cost of a cable bundle.&nbsp;
Are you ready for some football? The NFL will be back on television with virtually all of the games to be carried on television. Amazon must make the games available on television.
Bouncing over to OTT.&nbsp;ION and Bounce, both of the company&#8217;s Over The Air Networks, will be available on the Over The Top (OTT) space. All of the company&#8217;s stations apps will be launched on smart TVs this year. The company stated that it is currently half way there in terms of all of its stations on smart TVs and will have all of its apps on the platforms by year end. Notably, there is an advertising/revenue split for those stations. The company believes that it will be enhancing content available on such platforms as Pluto TV and Tubi.&nbsp;
Catalysts for growth. Management highlighted the follow growth catalysts for the company including Political, Retransmission fees, and its OTA and OTT network platform. Political advertising is expected to be $270 million this year, which is more than the most recent Presidential election, which is typically the highest amount of Political. Retransmission revenue is expected to significantly increase next year as 75% of its subscriber base renews contracts in the first half of 2023. We believe that the company will renegotiate rates north of $3 per subscriber and note that some of its current subs are near $2 per subscriber.&nbsp;
Debt rating upgrades. The company received a credit rating upgrade from Moodyâ€™s, in April, and from S&amp;P last November. The company paid down $700 million in debt over the past 12 months. Current debt is roughly 4.7 times cash flow and is expected to be 4 times by year end. Management stated that it certainly expects debt leverage to in the mid 3s by year end 2024. At which time, the company could consider making acquisitions.
Largest spectrum holder. After acquiring ION, Scripps is largest holder of spectrum in the United States. We believe that there may be another Spectrum auction in 2026 or 2027. Management indicated that it is reviewing options for its spectrum, but is not likely a seller. 
ATSC 3.0. The new broadcast standard ATSC 3.0 allows a number of business opportunities. The business models are still developing, but the company is looking at datacasting and autonomous car use. The company recently completed a test in Michigan whereby it used its current broadcast spectrum travel across the state without dropping the data. In addition, ATSC 3.0 will allow 2 way data flow. In addition, management indicated that it holds promise for enhanced sports betting whereby a consumer can hit a button during a sports broadcast. Management indicated that NexStar Media has been an interested partner to use Scripps&#8217; spectrum.&nbsp;
Multiple-station synergies. The company can add second stations in markets where it already has a presence without violating spectrum monopoly regulations. Management noted that there are significant synergies to be captured once the company has more than one station in a market. As such the company will look for opportunities to add a second station in certain of its markets. 
OTA campaign.&nbsp;As Figure #2 illustrates, management stated that over 8.5 million digital antennas were sold last year, some of them returned because people do not know where or how to put them up.&nbsp; Scripps is participating in a consumer marketing plan to assist consumer with questions like where to install the antennae and how to properly install. Scripps uniquely benefits from consumers moving to a digital antennae. The company is partnering with big box retailers and antennae installers. With roughly 35 channels available over the air, E.W. Scripps owns roughly 11 of those stations. Management indicated that digital antennas were initially purchased in rural areas, but growth could become more urban due to inflation pressures on MVPD rates.
What&#8217;s on the radar? Management indicated that once debt leverage is down in the 3s, it will look to possibly make acquisitions. Targets include owning a second station in a current market. Management plans to look at other networks, much like Katz, as well as content partnerships. Management indicated that if there was another opportunity to do an acquisition that Berkshire may be interested in funding.
Auto not the factor it was. Management indicated that Auto advertising which accounted for 20% plus of total television advertising has declined to be in the mid teens currently. Management indicated that Services has now become a very big category, The Services category has been driven by sports betting, which has become a big category.&nbsp;
Current local advertising environment. Management provided Q2 Local Media guidance which indicated that advertising was moderating in the second quarter from the first quarter. Management indicated that it is hoping that they exit the second quarter stronger than it started the quarter.&nbsp;
Inflation pressures? The company has seen some wage inflation, but it has not been material. The company indicated that there are a lot of open positions and that it is difficult to hire, especially in news.&nbsp;
Partnering with Google? Management indicated that it is working with Google to train journalists to become broadcast journalists.&nbsp;
A debt refi in the offing?&nbsp;Given the Berkshire debt, the company is prohibited from buying back stock or to pay a dividend. Management stated, however, that it is eager to pay a dividend and to be able to buy back stock.&nbsp;
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Figure #2
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/sspconnected.png" style="width: 597px;height: 331px" /> 
 
Source: Company presentation.
Figure #1
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/sspantennae.jpg" style="width: 594px;height: 330px" /> 
 
 Source: Company presentation

E.W. Scripps Company (The) (SSP)

Likely To Grow Faster Than Its Peers

Fundamental Analysis:

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Looking For A Strong Finish To The Year (SSP)

Lackluster Near Term Revenue Picture (SSP)

Hoping To Get A Nice Bounce (SSP)

Strong Reaction To A Decent Quarter (SSP)

Inbox Intel from Channelchek.