OREANDA-NEWS. May 04, 2010. CTC Media posted its Q1 US GAAP results with revenues of USD 123m (up 18% YoY), outpacing our forecast of USD 117m. EBITDA of USD 39.7m was in line with consensus, though EBITDA margin slipped to 32.2% (35% was expected). The net income of USD 25.2m was below our estimate of USD 27m., reported the press-centre of OTKRITIE Financial Corporation.

View: The positive surprise in revenues came from a price decline (-6% YoY) in 1Q10 that was lower than our estimate of -10%. The sellout rate of 97% also indicated that the decision to lower prices in 2010 was ill-timed, as the demand for TV advertising in Russia is picking up faster than expected. CTC guides for stable ratings, stable sellout and a 10-15% price increase in 2H10, which is slightly more optimistic than previous guidance.

Given the stronger ruble, higher sellout, sufficient price increases in 2H10 and minor ratings improvement, CTC media could deliver up to 20% revenue growth in 2010 versus the consensus 10% YoY growth figure (10% is also our forecast). Having said that, the consensus seems overly optimistic on EBITDA margin, expecting 38.5% in 2010. We feel that 35% is more likely. 

Valuation: On our 2010 EBITDA estimate of USD 200m (consensus at USD 217m) the stock trades on a 2010 EV/EBITDA of 13.5x. Its closest peer CME trades at 17x. 

Action: While we are excited about the improved top line prospects, the margin compression and high valuation of the sector weigh heavily on the stock. We reiterate a BUY rating and USD26/share target price, yielding a 42% upside over 12 months.