A Little More Revenue Could Fix It

Regains Its Crown

Provides Fuel To Its Growth

Stands Apart From The Radio Pack

Michael Kupinski

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Saga Communications Inc.

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Investment Appraisal.
The company reported solid Q2 revenue of $29.2 million, 1.7% better than our estimate of $28.7 million. Adj. EBITDA in quarter was $5.8 million, which beat our estimate of $5.2 million by 12%, as illustrated in Figure #1 Q2 Results. While revenue was down a modest 2.2% year over year, there were some favorable greenshoots. Notably, National advertising increased 12%, Non-traditional revenue increased 10% and Digital revenue increased an impressive 17%. The biggest surprise in the quarter was resilience of National advertising, given that many industry peers are reporting significant declines. We believe that the strong National advertising post in the quarter illustrates the company&#8217;s favorable growth opportunity as it focuses on this important ad category. In addition, we believe the company&#8217;s digital revenue growth will accelerate in the coming quarters, given its continued investment in digital initiatives and expansion of its digital product offerings.
The company&#8217;s interactive (digital) segment had a strong performance in Q2 and now comprises 9% of total company revenue. Notably, e-commerce experienced robust growth, with revenue up over 100% in the quarter. The favorable revenue momentum continued into July, which was up 179%. Importantly, management highlighted the expansion of its online newspaper to 2 new markets, which are currently not online yet, but have already filled major year long sponsorships. The expansion may be the first of many, as management indicated there may be significant untapped demand. Additionally, the company is&nbsp;training and deploying digital only sales staff to bolster digital revenues. Given the company&#8217;s favorable digital growth initiatives, we believe digital revenue growth could accelerate over the next several quarters.
Management highlighted the variation of advertising pacing in Q3 and the fact that advertisers are booking late. Additionally, The company is facing tough comps in Q3, attributable to the absence of political advertising. Core advertising is pacing down modestly in the low single digit range with pacings excluding political roughly flat. The company&#8217;s Q3 guidance is largely in line with our expectations. As such, we flowed through the Q2 upside to our full year 2023 estimates. Our forecast revisions are illustrated in Figure # 2 Q3 &amp; Q4 Revisions and Figure #3 2023 Revisions.
As of August 7, the company had approximately $38.3 million in cash and short-term investments, no long-term debt and a $50 million revolving credit facility that remains undrawn. Notably, the company has one of the best balance sheets in the industry, as many industry peers are highly levered. Additionally, the company has consistently generated positive cash flow and has paid out approximately $110 million in dividends since 2012.&nbsp;The SGA shares currently offer a quarterly dividend of $0.25, which yield a healthy 4.6%. In our view, the company is well positioned to make digital investments, return capital to shareholders and pursue accretive acquisitions.
Near current levels, the SGA shares trade at an attractive 4.4 times enterprise value to our 2024 adj. EBITDA estimate, well below industry peers, which trade at an average of 7.3 times EV/2024 EBITDA as illustrated in Figure #4 Industry Comparables. We are surprised that the stock valuation is among the cheapest in the group, while it is the prettiest at the dance in terms of large cash position, no debt, and above average revenue and cash flow growth potential (as illustrated in the company&#8217;s Q2 above industry performance). In our view, the shares should be trading near the top end of its peer group. Our price target of $27 reflects a multiple of 6.9 times EV/2024 EBITDA, which is more in-line with peers, but still at a discount. While the company is largely overlooked by investors, we believe the company&#8217;s favorable digital growth initiatives could lead to revenue and cash flow expansion, justifying a higher multiple. The shares are rated Outperform.&nbsp; 
&#8212;&#8212;&#8212;- page break &#8212;&#8212;&#8212;- 
Figure #1 Q2 Results&nbsp;
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/SGA-Q2-results.png" style="width: 337px;height: 783px" />
&#8212;&#8212;&#8212;- page break &#8212;&#8212;&#8212;- 
Figure #2 Q3 &amp; Q4 Revisions
 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/SGA-second-half-revisions.png" style="width: 430px;height: 709px" />
&#8212;&#8212;&#8212;- page break &#8212;&#8212;&#8212;- 
Figure #3 2023 Revisions&nbsp;
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/SGA-2023-revisions.png" style="width: 399px;height: 844px" />
 
Figure #4 Industry Comparables
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/SGA-comps.png" style="width: 537px;height: 282px" />
Source: Noble estimates &amp; Company filings

Saga Communications Inc. (SGA)

The Prettiest One At The Dance

Fundamental Analysis:

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A Little More Revenue Could Fix It (SGA)

Regains Its Crown (SGA)

Provides Fuel To Its Growth (SGA)

Stands Apart From The Radio Pack (SGA)

Inbox Intel from Channelchek.