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Communication Services

Media - Diversified

Entravision Communications Corporation

Investment Appraisal
 The planned acquisition of MediaDonuts Southeast Asia business is a significant step for the company outside of its Hispanic centric mediums. MediaDonuts is focused on India, Thailand, Vietnam, Singapore, Philippines and Malaysia. Importantly, MediaDonuts is an online advertising agency, similar to the company&#8217;s recently acquired Cisneros business. As such, MediaDonuts is an advertising agency that provides financing for advertising placements on social media platforms, such as TikTok, Twitter, and Spodify for a 10% to 12% commission. Cisneros business follows a similar model but is largely based on Facebook&#8217;s social media platform. Given Cisneros&#8217; strong relationship with Facebook, there is a prospect that MediaDonuts may add this platform to its mix. 
While the company likely will provide more details of the acquisition on upcoming quarterly earnings calls, we estimate that the purchase price will be roughly $32 million, with possible earn out potential. The company is expected to pay the $32 million in installments, with the first installment due upon closing of $15 million. Based on our estimates, MediaDonuts did $50 million on trailing 12 month revenues and $4 million in adjusted EBITDA, indicating that the purchase price represents 8 times trailing cash flow. Based on our 2022 adj. EBITDA estimate of $5.6 million, an estimate we view as conservative, the purchase price is 5.7 times full year 2022 cash flow, an attractive price based on the anticipate 40% cash flow growth in 2022.&nbsp;
As of March 31, the company had $165 million in cash and has the financial flexibility to complete the transaction to close on July 1st as planned. As such, we are adjusting our full year 2021 and 2022 estimates to reflect the acquisition. We are raising our full year 2021 revenue estimate by $25 million to $687.5 million and our full year 2022 revenue estimate by $70 million to $805.9 million. We are raising our full year 2021 adj. EBITDA estimate $2 million to $71.3 million and our full year 2022 adj. EBITDA estimate nearly $6 million to $77.1 million. Importantly, the company retains a solid balance sheet with firepower to pursue additional acquisitions like this one.&nbsp;
We believe that the importance of this acquisition should not be lost on investors. First, the company will diversify its businesses into non Hispanic markets. Secondly, the market potential is sizable and growing rapidly. And, third, this acquisition will solidify the company as a Digital Media business first, given that roughly 75% of its 2022 revenues are expected to be from its Digital Media businesses. In spite of this significant fast growing, Digital transition, the EVC shares trade below that of its traditional media peers and do not reflect the much higher stock valuations of Digital Media companies. Near current levels, the EVC shares trade at 5.4 times Enterprise Value to our upwardly revised 2022 cash flow estimate. Given our upward cash flow revision, we are raising our price target from $7.75 to $8.50 per share. Our price target represents a target multiple of 9.2 times, consistent with our previous valuation target. In our view, the EVC share represent a favorable risk/reward relationship and reiterate our Outperform rating.&nbsp;

Entravision Communications Corporation (EVC)

The World Is Its Oyster

Fundamental Analysis:

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A Compelling Total Return Opportunity (EVC)

Trying to Rope a Bull By Its Horns (EVC)

M&A Signal? (EVC)

Weathering The Economic Storm Nicely (EVC)

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