Torstar Valuation Hi guys,
I'm a german shareholder. Torstar is imo one of the most clearly undervalued stocks worldwide (in an overvalued stock market as a whole). Its intrinsic value can be calculated by a sum of the parts valuation:
Traditional newspaper business: (US newspapers valued at EV/LTM adj. Ebitda between 3-6)
range 4 - 5 X 43 million LTM adj. Ebitda Star Media Group and Metroland Media
= 172 - 215 million EV + net cash 75 million = Equity Value 247 - 290 million
Verticalscope: (comparable transaction-> Internet Brands buyout by KKR in 2014 at EV/LTM adj. Ebitda of 13):
range 12 -13 x 43 million LTM adj. Ebitda = EV 516 - 559 - net debt about 100 million
= Equity value 416 - 459 x 0.56 = 233 - 257 million
FYI Verticalscope's value could be higher because there was a big jump in quarterly Ebitda from second to third and fourth quarter (advertising from programmatic to direct). Based on
the fourth quarter Ebitda (7.5 mill.) assuming constant Ebitda over the quarters without growth in 2017 Verticalscope could be valued in one year (because then it's LTM) at 7.5 x 4 = 30 / 0.56 = rounded 54 million Ebitda in 2017 x 12 - 13 = EV at the beginning of 2018 at 648 - 702 million - net debt 100 (only FCF for aquisitions in 2017)= Equity value (56%) 307 - 337 million
Other investments:
Blue Ant (18%): original investment of 29.2 over 2011-2016 x 1.4 = 41 million (according to Torstar's 4Q report investor paid 40% more for a Blue Ant share in 2016 than Torstar's purchase price)
Eyereturn (100%): conservative EV/Sales of 1 = estimated 20 million (low for adtech companies at the moment; compare to for example to AcuityAds)
Black Press (20%): conservative: net income for 20% of 5 million x 4-6 = 20-30 million
Conservative value for 50% Singtao, 50% Workopolis, Canadian press, Kanetix, Canadastays, Teamsnap etc. = estimated conservatively at 20 million
=> Sum of other investments 101-111 million
Intrinsic value of Torstar:
(247-290) + (233-257) + (101-111) = range of 581 - 658 million
Pension liabilities: solvency deficit at the end of 2016 122 million. A present value is difficult to calculate because it could fall significantly if interest rates rise further and/or there is legislative action regarding pension liabilities in Ontario. For simplification I take the solvency deficit as NPV of pension liabilities.
=> Intrinsic Value of Torstar: 459 - 536 million CAD divided by 80.6 million shares
= 5.70 - 6.65 per share
FYI: Factors not considered:
- Possibility of a fall in pension liabilities
- Higher value of Verticalscope because of a jump in Ebitda through migration from programmatic to direct advertising
- A holding structure would have a natural discount (e.g. 20%) to intrinsic value at the stock market
- Shareholders agreement between Torstar and Laidlaw/Resch forbids selling the 56% of Verticalscope for three years (Standstill till the end of July 2018)
=> Incredible discount of Torstar stock; Great risk/reward ratio at 1.83; only a matter of time IMO
Possible explanation:
Highly problematic ownership structure, which makes it very difficult to realize the intrinsic value. (Without the voting trust there would be a lot of interest by possible investors to make that value happen) => But imo it is - as mediawatcher said - only a matter of time. Either the new CEO will make it or another Investor (perhaps Faifax) will make it happen. Furthermore, the five families are frustrated with this stock price, too. Would be great if the families would give the new CEO the freedom to realize the true value of Torstar....