OREANDA-NEWS. November 05, 2009. Having revised our macro forecasts and updated our oil price projections, we are upgrading our CTC Media model and switching from a Fair Value to a 12-month Target Price. As a result of including a strengthening rouble and higher oil prices, we now calculate a TP of USD 28, implying 62% upside potential from current levels. We are therefore reiterating our Buy rating.

CTC Media’s 2010-18F top line upgraded on stronger macro expectations. Having revised our forecasts for the Russian TV market on the back of stronger oil prices and the rouble appreciation, we have upgraded our 2010-18F dollar-denominated revenue projections 23% and our 2010-18F EBITDA forecasts 21%. We revised our FY09 top line, EBITDA and net income forecasts up a marginal 0.5-1.0%.

We view CTC Media as uniquely positioned to capture Russian TV growth on its i) clear programming focus (pure entertainment); ii) premium audience; iii) ability to price at a premium to the market (CTC network’s 2Q09 power ratio was over 1.5); and iv) margin resilience backed by increasing focus on in-house programming.

The 3Q-4Q09 results are the near-term driver. In our view, CTC Media’s 3Q09 (to be reported on 5 November) then 4Q09 results might surprise on the upside and improve visibility on 2010. We expect to see vivid confirmation of the company’s ability to continue monetising its audience at premium rates amid shrinking demand.

Our DCF valuation uses a 14% WACC and a terminal growth rate of 4.4% (equal to the nominal long-term GDP growth projected by our macro team). The stock currently trades at a 20-22% discount to Western European peers on 2010-11F EV/EBITDA.

The key downside risks for our valuation stem from weaker than expected demand, greater competition and programming inflation.