The investment analysis below is our seventh in our ongoing series of guest write-ups, and is brought to you by friend of the blog Adam Wyden. Adam is a graduate of Wharton, Colombia Business School, and founder and managing partner of ADW Capital Management. Per Adam, ADW Capital Management, LP (“ADWCM”) is a long-term value partnership with a Jan 1, 2011 anticipated launch date. ADW strives to produce high risk-adjusted returns through conservative yet catalyst driven equity investing in small under-followed businesses primarily in the US, Canada, and select opportunities in Western Europe.
ADW’s approach is modeled after the philosophy and structure of Buffett Partnership, Ltd (managed by Buffett from ‘56 to ’69) and seeks to evaluate all its investment ideas as if one were buying the entire company while thinking about “long term franchise value” versus simply “price”. We narrow our universe to great businesses with sustainable franchises, stand-up management teams (significant skin in the game), competitive moats, and a long runway for value creation. We also only invest in situations with large margins of safety, an asymmetric risk-reward, and where we feel like we have a real edge. By concentrating our time and effort solely on the best ideas we avoid “idea dilution/crowding” and minimize risk of significant capital loss (please direct any potential inquiries to email@example.com).
What’s not to love, no?
For those unfamiliar, we think CTMMB is an attractive (read dirt cheap) micro-cap spin-off, with an interesting/misleading past, as well as some very favorable underlying dynamics that the market is not currently recognizing/giving the company credit for. Adam’s take is that CTMMB will eventually garner a much better multiple on much higher profits at some point down the road – as management continues to re-engineer/reconfigure the company’s portfolio of businesses in a manner that will likely continue to create significant shareholder value. We agree.
Anyhow, below is an updated version of Adam’s mid-January thesis of CTM Media. Enjoy!
CTM Media is a very interesting business with a very interesting story and a even more interesting chairman. CTM Media was spun out of IDT in July 09. For those of you familiar, IDT was the company that invented Net2Phone and basically was the undoing for long distance telecom providers. With the advent and proliferation of free long distance on cellular, VOIP, and competitive triple play offering from Cable providers, IDT began to diversify out of its core businesses — telecom which was dying and publishing/media a stalwart provider but with little “perceived” growth. The engimatic chairman who build this company from scratch has suffered from severe bouts of depression and unfortunately took a sabbatical from the company and went to study torah in Israel when IDT needed help the most. Fortunately, Howard came back to the states and reality and stepped back into the role of right sizing IDT. Unfortunately, Howard came back when the world was falling apart — Sept. ’08. If we fast forward to today, Howard has succesffully cut costs and is running an asset rich business (Real estate holdings, telecom biz which is worth something to someone, and this utility business that is doing unusually well, and the co. itself is profitable and trading below EV). There are alot of moving parts in the IDT business and value at first glance is not clear. What is clear is that Howard Jonas — CEO/Chairman is focused on bringing all his companies back to profitability and building shareholder value — namely for himself.
It is unclear why Howard decided to spin-off CTM Media to its shareholders given that its a profitable and stalwart franchise. My only guess is that b/c IDT is comprised of so many disparate parts, the market would never put the multiple it deserved on this business and its profitability would be masked by IDT’s struggling telecom biz.
In my mind, CTM is a once in a lifetime opportunity and those who were fortunate enough to get this business at .70 post-spinoff will be the source of my envy for a great while. The Company’s core business is very simple to understand. It’s CTM business stands for creative theatre marketing. Those of you familiar with NYC might recognize the brochure stands that exist at public locations throughout NYC — statue of liberty, ellis island, empire state bldg, penn station, and various hotels. CTM not only has the rights to place these stands — colloquially know in the biz as “CTM’s” but publishes the brochures for the relevant purveyors of survices — largely theatre companies and other tourist attractions. My channel checks with various people in the theatre/hospitality business tell me that they have a great reputation and are a critical part of their marketing efforts. I have been told that pricing increases 3-4pct a year and requires almost no capex — great for a PE type buyer or a roll up for a WPP, Omnicom, etc. On a nomralized basis I think this busness can do about 4mm of EBITDA a year — that alone should signal a real deal.
It’s other businesses include IDW and a radio station that they are in the process of selling. MY PF EBITDA calculation takes into account the radio station running at breakeven though my EV calculation does not include the $4mm potential of cash/promissory note that might come from the sale of its WMET radio station. I purely assume they can give it away and increase EBITDA by its run-rate loss (very conservative in my opinion and valuation changes dramatically if radio station deal goes through at $4mm). IDW on the other hand could be a source of real value. The company is a publisher of sorts specializing in comic books/graphic novels and recently childrens books. Those of you familiar with sci-fi/fantasy, IDW published comic books/graphic novels for 30 days of nite, GI JOE, Transformers, Star Trek, and many more. The company has been working feverishly on distributing these titles on Ipod, Iphone, Itunes, PSP, etc. and have been told that will be incrementally high margin. IDW is also responsible for the children’s publishing arm that Howard Jonas purchased while at IDT that I am told is relatively stable and could provided future avenues for growth. In 2008, the Company did almost 1.8mm in EBITDA which was unusually high but was a byproduct of many major movies coming out — GI JOE, Transformers, etc. It was fortunate b/c it offset some losses the CTM business was experiencing from some of their customers going out of business during the great recession. Fortunately, the CTM business has shown signs of life and carrying its weight with IDW doing about half of what it did last year which was a breakout year for them. After many talks with Ted Adams, founder of IDW, I am confident and he is as well that they will continue to methodically grow this business. My valuation does not take this into account as I assume about a 1mm EBITDA less the 23 pct non-controlling interest of this business segment (in all likelhood mgmt. will buy this out at some point) which is a run-rate of last qtr. (very conservative) and could significantly outperform my expectations. Again, this is a low capex business which great brands and operators who are focused on quality over quantity. Those familiar with comic books know that IDW is a close 3rd to Marvel and DC.
If you assume my PF numbers which are very conservative and do not take into account proceeds from the sale of the radio station, the company is trading at 1x EBITDA and 1.56x EPS (net of cash). The valuation is significantly better if the sale goes thru. FYI, Company was also able to sneak 1mmm shares through a tender offer at 1.10 and my math takes into account PF share count and cash used to repurchase. Mind you at 1.10 the company was repurchasing shares below cash– unbelievable.
My 4.00 PT assumes a 4.63x EBITDA for a business that is stable with significant opportunity for growth on the IDW side — stil very cheap. If we assume the company gets some $$ from the radio station, the valuation only improves. Realistically, I believe this company is worth north of five dollars to either a strategic or we get significant growth on the IDW side.
The company trades on the pinksheets under CTTMB.pk, CTMMA.pk, and CTMMC.pk — doesnt trade and is supervoting owned by Howard Jonas.
Also interesting to note that CTM’s second largest shareholder after HJ is William Martin of Raging Capital Management. William Martin was notoriously bearish on IDT when Howard left the company in arrears but suddenly got bullish when Howard came back to right size the ship. Martin received his CTM shares through the spinoff from IDT and has continued to buy — recent fliing shows him buying at 1.50+ where CTM represents a significant portion of his portfolio. Not to mention, this was a guy who was very wary of what HJ is capable of — shale oil and all the other nonsense IDT got involved in. It seems as if the p/value balance more than compensated for Martin’s HJ fears and it seems that HJ is continuing to do right by his shareholders and has drawn increased attention from people who initally doubted him, namely myself and Bil Martin.
With only 1 qtr of published results as a standalone business I think the market doesn’t trust the strength and longevity of CTM’s two great core assets. I think the downside is that Howard Jonas spends your cash on value destroying business which is what happened to some degree at IDT. Fortunately, HJ is showing no signs of destroying shareholder value but realistically trying to create value for shareholders ( he is the largest shareholder and holds shares for his wife and children too in a irrevocable trust). The tender offer and the potential sale of the radio station give me some comfort that Howard is steering this ship right. Also, Howard has significant experience in the publishing business as it was his first business he started out of college — he is not operating a business outside of his core competency for now which is an additional source of comfort for me.
Radio station sale is going through and run rate earnings profile improves. Company approved special dividend of .25 and HJ mentioned they have no intent to keep unnecessary capital or invfest in value destroying ideas. Looks like Howard is looking for redemption for his follies at IDT and hes taking people by storm with CTM. Stay tuned….
If you include seller note for radio station the company is trading at 1x EBITDA again. When I spoke to Howard Jonas last he made a smug comment: “how did you get so much… I wish I owned more..” Read into it however you want. The Chairman likes the stock…he tried to tender for a 1/3 of the company last oct/nov. Do not be surprised if the valuation stays low like this if he tries to do it again. In the event that the stock trades up, perhaps he will do another special dividend. For those of you following the IDT story, Howard has breathed life back into that monolith and his paying himself a very nominal salary. FWIW, I think CTM’s divs is Howard’s key to paying for all the weddings of his twelve children. Not to mention, the Company has 48mm worth of NOLS — so it will not be a tax-payer for a long while. So the way I see it you got 5mm of untaxed CF next year for a 4-5m EV and the cash will get returned to you. Seems pretty good, right?