Central European Media Enterprises: Turnaround Progressing, with Catalysts Ahead

Amit Chokshi of Cross Island Advisors presented his in-depth investment thesis on Central European Media Enterprises (Nasdaq: CETV) at Wide-Moat Investing Summit 2018.

Thesis summary:

Central European Media Enterprises is a leading television network company operating in Romania, Bulgaria, the Czech Republic, and the Slovak Republic. CETV operates 26 channels and maintains the #1 market position in each country of operations. The company and its investors have endured a tumultuous decade, whereby top-tier television assets that generally hold leading market positions were paired with an inflexible and costly debt structure that led to several dilutive transactions from 2009-2014.

Since the appointment of new management in Q4 2013, the company has improved revenue, cash flow, the and capital structure, with revenue growing by ~20% over the past two years and EBITDA increasing by 50+% over the same period. The company’s cost of borrowing dropped from ~11% to under 4% from 2014 to Q1 2018. CETV has reached an inflection point whereby additional levers can be pulled to drive further operating performance that should lead to additional price appreciation and a potential upward re-rating in the valuation.

CETV’s progress over the past three years and potential valuation drivers in the coming years are somewhat analogous to U.S.-based television broadcasters from 2011-2016 when many of these companies experienced sharp, positive re-ratings in valuation due to increased ad revenue pricing and a higher proportion of revenue derived from less volatile retransmission fees.

Similarly, CETV has the ability in its largest country, the Czech Republic, to drive growth in carriage fees as television distribution shifts from Digital Terrestrial TV to satellite, cable, and IPTV. If CETV achieves the same increase in valuation U.S. broadcasters did from 2011-2016 or if CETV achieves a multiple comparable to two of its operating segments (Slovenia and Croatia) that are in the process of being sold, the shares would be worth 100+% from recent prices.

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About the instructor:

Amit Chokshi is the Chief Investment Officer of Cross Island Advisors (CIAD), a New York-based SEC Registered Investment Advisor. CIAD was initially created to advise Doshi Capital Partners, a New York-based single family office, in the allocation of its capital across public and private investments. Prior to joining Doshi Capital Partners, Amit was a Portfolio Manager at City National Rochdale (“CNR”), where he managed capital across multiple asset classes for high net worth, ultra high net worth, and family office clients. From 2007 – 2012, Amit was the Portfolio Manager for Kinnaras Capital Partners, a deep value / special situations hedge fund he founded. Prior to Kinnaras Capital, Amit was an Associate in the Leveraged Finance Group of the Royal Bank of Scotland (“RBS”) where he was involved exclusively in financial sponsor-backed middle market and mega cap transactions. Amit started his career as an Analyst at Morgan Stanley. He is a CFA Charterholder and served on the Board of the CFA Society of Stamford from 2006 – 2014. Amit has a B.S. in Finance from Bryant University and MBA from Emory University.