A Much Better Quarter Than The Stock Suggests

Highlights From Noblecon19

Constructive On A Strong Rebound In 2024

Digital Revenues Carry The Quarter

Michael Kupinski

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Beasley Broadcast Group Inc.

Investment Appraisal
A key takeaway from the meetings came from managementâ€™s update on the current advertising environment. Rising inflation and fears of a looming recession often result in businesses slashing advertising budgets. So far, this has been most evident in the national advertising category. Management stated that Beasleyâ€™s national ad revenue was down roughly 20% in the most recent quarter. However, local has continued to grow, up 25%. Importantly, local broadcast and its digital operations comprise local advertising. Given that national only accounts for roughly 16% of Beasleyâ€™s advertising revenue, local is more than compensating for the weakness in national and is driving total company revenue growth. We believe that the prevalence of local advertising over national in Beasleyâ€™s business model is not being fully recognized by investors. As some large players in the industry are suffering from having a greater exposure to national advertising, the effect on Beasley has been somewhat muted. &nbsp;&nbsp;&nbsp; 
Beasley recently purchased a digital marketing agency, which runs websites for small businesses and is a one-stop shop for any digital advertising need&nbsp;including web site development, search optimization, and social media monitoring, among others.&nbsp;Beasley charges $500-1500 per month for the service, which represents an entirely new recurring revenue stream for the company. The new subscription business also serves a great way to develop relationships with future on-air advertisers. We believe this new business will be an important factor for the company reaching its Digital revenue growth goal of 40% of total revenue by 2024. Notably, the Digital target of 40% of revenues is an increase from its previous target of 30%.&nbsp; &nbsp;&nbsp;
As of March 31, the company had $50.7 million in cash and $294 million in long-term debt. Management stated that debt reduction is a top priority for the company. It recently has been able to retire $7 million of its debt at discounts of 4% to 20%. Additionally, the company has the flexibility to pursue accretive acquisitions, particularly in the digital space, should the opportunity arise.
Near current levels, the BBGI shares trade at 8.4 times Enterprise Value to our 2023 adj. EBITDA estimate. The BBGI shares trade at 6.4 times Enterprise Value to our 2024 adj. EBITDA estimate, below the average trading range of 7.7 to 11.5 times for the stock over the past 10 years. Our price target of $3 reflects a multiple of 7.6 times 2024 cash flow. We believe that the multiple may be conservative should the company execute on its digital growth strategy. Moreover, we believe that there are favorable upside cash flow potential as it executes on its digital and local advertising strategies. Over the next 2 years, we believe the company will look very different, as its digital businesses develop. As noted earlier, Digital revenue is expected to account for as much as 40% of total company revenues by 2024, which should improve the companyâ€™s growth profile. We believe that the multiple should expand to reflect the company&#8217;s favorable growth prospects. The BBGI shares are rated Outperform.

 
Meeting Highlights
Expanding Digital margins. Management noted that its Digital segment has not been cash flow positive due to revenue not having caught up to the costs of launching the digital businesses. However, Digital is expected to turn cash flow positive by Q4, and management stated it will likely achieve double digit margins in 2023.
Looking for more digital content. Although reducing debt is the companyâ€™s #1 priority, Beasley could make acquisitions, especially of companies that would bring robust digital content creation. However, management noted that any acquisition must be a de-levering event. &nbsp;
Digital growing its piece of the pie. Following 54% Digital revenue growth last year, management stated that similar growth is expected this year. Notably, management expects Digital revenue to account for as much as 40% of total revenue by 2024, ahead of previous estimates. 
Boosting â€œpure profitâ€ ad-impressions. The company launched an initiative to require its broadcast talent to post digital content twice a day, in order to boost ad impressions on Beasleyâ€™s websites. Importantly, ad revenue on the companyâ€™s sites is essentially pure profit. One example of this would be a sports show host in Boston posting an article about the Patriots on the stationâ€™s website. &nbsp;
Room for greater broadcast dominance. The FCC limits the number of stations a broadcaster can operate in a given market. Notably, the company can still add an FM station in two of its large market clusters, Detroit and New Jersey.
Sports betting filling the void. Sports betting has helped replace lost revenue from the recent weakness in auto advertising. Moreover, management noted that there are millions of dollarsâ€™ in sports betting ad contracts waiting on the potential legalization of sports betting in Massachusetts. Notably, Beasley has the largest sports station in Boston, which is also the #1 overall station in Boston.
Nearly back to Pre-COVID. Management noted that Q2 revenue is expected to be only slightly below 2019, by roughly 1.5%. This implies that Q2 revenue likely will be slightly above our $63.75 million estimate. In addition, management indicated that the company should be above 2019 levels by Q4, in line with our expectations.&nbsp; &nbsp;&nbsp;
Political tailwinds. Management highlighted that 2022 is shaping up to be a strong political year. Our forecast calls for $13.2 million in Political revenue for the full year.

Beasley Broadcast Group Inc. (BBGI)

Raises Its Digital Game

Fundamental Analysis:

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A Much Better Quarter Than The Stock Suggests (BBGI)

Highlights From Noblecon19 (BBGI)

Constructive On A Strong Rebound In 2024 (BBGI)

Digital Revenues Carry The Quarter (BBGI)

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