A Year Of Investing

A Tough Quarter Ahead

A Stronger, More Diversified Company

Fast Forward To The Fourth

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Media - Diversified

Salem Media Group Inc.

Investment Appraisal
If investors have not paid much attention to this company for some time, they may not recognize it. The company has slowly and deliberately built a multi media/entertainment company. Its recent foray into film making, with the release of 2000 Mules, is an example of that. Furthermore, the company continues to invest in its Salem News Channel and build out of Salem Surround and Salem Now. Finally, its Digital businesses continue to perform well, with revenue up a solid 11%, now accounting for 30% of total company revenues.&nbsp;
As Figure #1 Q1 Results highlight, the company delivered solid first quarter results, with revenues slightly above expectations and adj. EBITDA in line. The Q1 revenue performance is significant and implies that the company is on a better revenue trajectory than our previous expectations. Q1 revenues increased 5.5%, better than our estimate. As Figure #2 Q1 Segment Contributions highlight, Broadcast Revenue was the largest variance to our original estimate. The company benefited from strong demand for its block programming, adding two large ministries to its block programming platform. This has favorable implications for revenue growth for the foreseeable future. This business is highly recurring. While Publishing revenue was lower than expected, this business is highly volatile and dependent upon titles. In our view, the number of book titles should improve in the second half of the year. Adj. EBITDA was $6.8 million, in line with our estimate.
Looking forward, the company provided Q2 guidance that was better than expected.&nbsp;Management guided Q2 revenue to grow between 6% and 8%, year-over-year from Q2 2021 revenue of $63.8 million. This implies Q2 revenues to be in a range of $67.6 million to $68.9 million. The revenue guidance is above our original expectation of $65.5 million. Notably, there is upside given the favorable revenue contributions of a recent film currently in theaters, called 2000 Mules. It has not been determined how the company will account for this film, which could be included in revenues. Our Q2 revenue estimate is $68.8 million, exclusive of the film revenue, and adj. EBITDA of $7.25 million. While we have adjusted upward our full year 2022 revenue estimate from $270.0 million to $274.4 million, we are currently maintaining our full year adj. EBITDA estimate at roughly $38.0 million.
The company is making progress on debt reduction. As of March 31, the company had long term debt of $168.3 million. Notably, the company sold 9.3 acres of land in Denver for $8.2 million and several stations to Word Broadcasting for $4.0 million. The proceeds from the sales are expected to be used for debt reduction. Based on the prospective proceeds to be used to pare down debt, the company is inching close to a favorable 4 times debt to cash flow. This puts the company in a good position to refi its debt next year, particularly its senior secured notes due 2024.&nbsp;
As Figure #4 Stock Chart illustrates, the SALM shares have been weak, much like all media stocks. The SALM shares have declined 34% from recent highs in March. We believe that the weakness is reflective of investor anxiety over inflation and fears of an economic downturn. Importantly, we believe that the company is in one of its strongest positions it has been should the economy turn. Its debt leverage is among the lowest it has been. In addition, a large portion of its business, block programming, is recession resilient. Again, its Digital revenue, which has grown at double digit rates, represents 30% of total company revenue.
Near current levels, the SALM shares trade at an attractive 6.4 times enterprise value to our 2023 cash flow estimate. We believe that this valuation does not give full credit for the company&#8217;s digital businesses, nor its multi faceted, media businesses. The shares are rated Outperform with a price target of $5.25. 
 
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Figure #1 Q1 Results
 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/salmq1results.jpg" style="width: 439px;height: 716px" /> 
 
 

 

 

Figure #2 Q1 Segment Contributions 
 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/salmsegmentstuff.jpg" style="width: 389px;height: 156px" /> 
Figure #3 Q2 Revisions

<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/salmq2stuff.jpg" style="width: 379px;height: 601px" /> 
 

Figure #4 Stock Chart

<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/salemstockchart.jpg" style="width: 698px;height: 306px" />

Salem Media Group Inc. (SALM)

Transforming The Way You Think About Salem (Corrected Copy, $5.25 PT)

Fundamental Analysis:

Rating: Log in to view

A Year Of Investing (SALM)

A Tough Quarter Ahead (SALM)

A Stronger, More Diversified Company (SALM)

Fast Forward To The Fourth (SALM)

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