OREANDA-NEWS. August 04, 2010. CTC Media has decided to form its own sales house following legislation restricting the market share of Video International (VI), its current ad seller. Management presented the decision to the Board on Friday, according an CTC executive cited by Kommersant. However, sources in the company also said that CTC is likely to retain Video International as a consultant on pricing policy and other matters. A formal announcement regarding updated sales strategy is expected when CTC reports 2Q10 results on Thursday, 5 August, reported the press-centre of OTKRITIE Financial Corporation.

View: The recent sale of VI to the well-connected Bank Rossiya has fueled expectations that the sales house will be able to de facto maintain its current 70% market share even after a 35% cap goes into effect in early 2011. Price consultancy agreements like the one reportedly being discussed by CTC could be the mechanism for allowing the market to stay consolidated while still formally complying with the law. We remain cautiously optimistic that the TV ad market going forward will grow as robustly as if VI's formal share remained intact, but the final impact on CTC will depend on any consulting fees it pays, as well as ad agencies' ability to exploit any space that opens up between CTC and VI's other channels in order to negotiate lower prices for their advertisers.

Valuation: CTC Media trades at 2011 EV/EBITDA of 10.0x.

Action: We expect neutral market reaction, as the implications are still unclear. We maintain our BUY rating on CTC and positive on the TV ad market as a whole.