RELEVANT EVENT
Equity Research
July 13th, 2005.
TVAZTCA
Expectations for 2Q05 Report Recommendation: SUPERIOR
We anticipate a good 2Q05 report.
Scotia Inverlat Casa de Bolsa Ana G. Ocejo +5255 5325-3309 aocejo@scotiainverlatcb.com TVATZCA could report its 2Q05 results after the market closes on July 19, although the date has not been confirmed. We expect a good report from the company, with an estimated increase in revenue of 5.4% vs. 2Q04 and a slight narrowing in margins compared to the same quarter last year. We think that revenue has been boosted by several factors: high audience levels in the programming bar; the outstanding success of its “La Academia” (talent) program, which achieved maximum audience levels in Mexico and in the United States; a seasonal benefit due to the fact that Holy Week fell in the first quarter this year as opposed to in the second quarter in 2004; and, extraordinary income from publicity related to the gubernatorial election in the State of Mexico, as well as from the publicity campaigns of different political parties’ "precandidates" for Mexico’s 2006 presidential election. Revenue in 2Q05 grew at a high rate compared to 1Q05 because of seasonal effects, since the lowest income figure for a year is usually registered in the first quarter. Margins deteriorate slightly vs. 2Q04. We expect a percentage-point drop in the EBITDA margin for 2Q05 compared to 2Q04 as a result of additional pressure from programming costs. Although revenue from the political campaigns is expected to have contributed positively to EBITDA, the costs of “La Academia” have had a slightly negative impact on 2Q05 margins. Compared to the first quarter of this year, we expect a substantial improvement, since the 1Q05 margin was the lowest one reported by the company since 1Q01.
This document, prepared by the Department of Stock Market Analysis and Strategy and directed exclusively to persons living in the Mexican territory, or persons abroad that are Major Institutional Investors or Registered Broker Dealers according to Regulation 15ª-6 issued by the Securities and Exchange Commission, is published for the sole purpose of providing information and analysis based on sources that are considered reliable and that, however, do not guarantee their veracity. The opinions, estimates and projections contained herein reflect the personal point of view of the analysts of Scotia Inverlat set forth in the present document, not that of one business area in particular and not necessarily an institutional opinion. Said opinions may be modified according to changes in the economic, political and social conditions and should not be considered a unilateral declaration of will nor be interpreted as an offer, suggestion or invitation to buy or sell any security or as an offer, invitation or suggestion to contract the services of Scotia Inverlat. The compensation of the analysts who prepared the document depends, among other factors, on the profitability and income generated by all the areas of Scotia Inverlat, but not by any business or business area in particular. The analysts’ compensation is not related to a particular recommendation; the compensation, among other factors, depends on the accuracy of the estimates and recommendations contained in this document. The analysts do not receive any compensation on the part of the issuers of the securities described in this report. Scotia Inverlat or any other company of the Financial Group may make investments on their own account in the securities described in this report (placing agent, structuring agent, common representative, financial advisor, financial services, etc.). The Analysis Department, of which the analysts who prepared this report are a part, is an area independent of the business areas, including the area of Operations and Investment Banking, and does not receive any remuneration, instructions, pressure or influence of any kind from the business areas that might effect in any sense the opinions contained herein. The employees of Scotia Inverlat, including the analysts who prepared this document, are not permitted to invest directly in the companies that quote on the Mexican Stock Exchange. Direct investment is only permitted in bank savings instruments and/or in the own Institution’s investment funds. This document may not be photocopied, used by any electronic medium or be reproduced by any other means or method in part or full; neither may it be quoted or divulged without prior authorization from the Department of Stock Market Analysis and Strategy of Scotia Inverlat Casa de Bolsa, S.A. de C.V. (brokerage firm), Grupo Financiero (financial group) Scotiabank Inverlat. The services of Scotia Inverlat Casa de Bolsa (brokerage firm) are not available to persons in the United States of America except according to that set forth in Regulation 15ª-6 of the Securities and Exchange Commission of the United States of America.
July 13th
TVAZTCA
Lower extraordinary expenses benefit net profit. Despite an estimated 10% increase in the overall financial cost (OFC) vs. 2Q04, we project an approximately 3% growth in net profit based on our estimates of reduced costs and lower extraordinary expenses. Additionally, we expect the company to report a loss in the foreign-exchange category (vs. a gain in 1Q05). However, this loss will be smaller than the one reported in 2Q04, thanks to the company’s concerted effort to reduce its dollardenominated debt (by close to 30% of its total debt); on the other hand, it has important assets referenced to the dollar (such as collectibles from Pappas Telecasting and a contract with Unefón) and therefore the appreciation of the Mexican peso in 2Q05 will result in an exchange loss for the company. 2Q05 we estimate an EPS of P$0.16 and an EPADR of US$0.22. The company will no longer quote on the NYSE as of July 18. In accordance with the decision taken at its Stockholders’ Meeting, the company will stop quoting on the NYSE next week. trading in its CPOS could increase. As a result, in Mexico In yesterday’s session, TVAZTCA stock It is interesting to For
turned in an outstanding performance – it advanced a little more than 6% during the day’s trading and closed with a gain of 3.5%. also advanced. note that trading in Mexico was more active than in the U.S., although the ADR There was no news that could have had an influence in this advance, and the repurchase fund did not participate in yesterday’s trading. We believe that the sharp decrease in the price and the expectation of a good report are factors of support for the price. Despite an attractive valuation for this stock, and although our valuation leads to a SUPERIOR recommendation because of the expected yield, we maintain the view that the risks for this stock are very significant. These risks plus the stock’s withdrawal from the NYSE will be factors that will affect its price. Therefore, we suggest caution.
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TVAZTCA
TV Azteca: Income Statement in real pesos (m )
Jun-04 Net sales Cash COGS Gross oper. profit Oper. expenses EBITDA Depreciation & amort Operating profit Financial costs (income) Interest paid Interest income Net interest pmts. FX loss (gain) Mon. pos. loss (gain) Profit after. f.c. Other costs (gains) Extrd. costs (gains) Pre-tax profit Taxes After tax profit Equity income Minority participation Net income Adjusted net income (1) Cash earnings EBITDA adjusted (2) Total cash costs Gross operating margin (%) EBITDA margin (%) Operating margin (%) Net debt US$(m) Net debt adj. US$(m)* Net int. coverage** (x) Debt / EBITDA annualised*** (x) Number of CPOs Net per CPO Adjusted net income per CPO EBITDA per CPO Number of ADRs Net income per ADR in US$ Adj. net inc. per ADR in US$ EBITDA per ADR in US$ 2,062 816 1,246 273 973 110 863 203 207 (45) 162 33 7 660 129 0 531 61 470 (6) 0 464 498 797 913 1,089 60.4 47.2 41.9 512 527 5.63 1.55 2,992 0.16 0.17 0.33 187 0.22 0.23 0.46 Mar-05 1,673 768 904 273 632 98 534 182 212 (18) 194 (12) 0 352 98 0 254 45 209 (6) 0 202 200 294 550 1,041 54.1 37.8 31.9 367 429 2.84 1.97 2,929 0.07 0.07 0.22 183 0.10 0.09 0.30 Jun-05 2,172 875 1,297 288 1,009 99 910 223 213 (40) 173 17 33 687 104 0 582 97 485 (8) 0 477 509 635 934 1,163 59.7 46.5 41.9 392 409 5.41 1.20 2,929 0.16 0.17 0.34 183 0.22 0.23 0.46 n.a. 148.4 56.0 1.0 0.3 1.9 6.9 (4.7) (23.3) (22.5) QoQ 29.9 13.9 43.4 5.5 59.7 1.8 70.4 22.9 0.7 126.5 (10.9) (240.9) 12,512.4 94.8 6.0 n.a. 129.3 115.1 132.3 19.7 n.a. 135.9 154.3 115.6 70.0 11.7 YoY 5.4 7.3 4.1 5.4 3.7 (9.4) 5.4 9.9 2.9 (10.1) 6.5 (47.9) 350.8 4.0 n.a. n.a. 9.7 59.9 3.2 n.a. n.a. 2.8 2.1 (20.3) 2.3 6.8
Source: Company reports and Scotia Inverlat estimates. Thousand of pesos as of June 2005.
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