Experienced management for troubled times

I want to tell you about a family management team who bought shares in their company during troubled times in the past and sold them during better times for large rewards.

In fact, a family management team that has done this not once, but twice.

And they are buying shares their company again.

Do I have you attention?

What does the company do?

Podcasts

Over 2500 owned and operated podcasts and on-demand content featuring some of the most well-known and influential voices in culture, politics, business, sports and more. They produce podcasts that routinely debut in the top 10 of the Apple Podcasts chart and reach tens of millions of listeners.

Radio

One of the country’s two largest radio broadcasters, offering marketing solutions that deliver the power of local connection on a national scale with coverage of close to 90% of persons 12+ in the top 50 markets.

Entercom claims to be  the #1 creator of live, original, local audio content and the nation’s unrivaled leader in news and sports radio.

Events

Entercom is a leading creator of over 500 live events in 47 markets each year. From epic concerts to once-in-a-lifetime fan experiences, our events are a true extension of our powerful station brands that resonate with millions of passionate fans.

Anything else to like about Entercom?

Revenue   $1.49 Billion

Free Cash Flow $91 Million

Book Value $881 Million

Market Cap $112 Million

Wait in 2019 the company generated Free Cash Flow of $91 million and only has a market cap of $112 million?

Why does it appear so cheap?

Corona Virus

As you can imagine the Corona Virus has killed their Events business in the near future.

Plus Entercom's revenues are driven by advertising revenue - mainly on radio, but also from podcasts and its digital platforms like Radio.com. Unfortunately, a lot of businesses may slash their advertising spend because of the Corona Virus.

Entercom has already announced layoffs and furloughs to cut costs during this economic downturn.

Debt

The company carries $1.7 billion in long term debt - and people are concerned if they will be able to meet their debt commitments during this economic downturn or breach their ratios.

If that happened, the company would be forced into bankruptcy and shareholders might lose anything. Some people might believe the company is being run for the benefit of the lenders.

Reporting Losses due to non-cash write offs

I each of the last 2 years, the company has written off over $500 million dollars from the value of their goodwill, radio licenses, etc. These are non-cash expenses, but they cause the company to report large losses. These losses cause a lot of people to pass over the company without digging deeper to look at their cash flow.

So why am I buying

Normally I would not because:

  • its debt level is too high (but the company has been focused on reducing this debt, instead of buying back shares which has upset some shareholders)
  • its return on equity is too low

But I am buying for 4 reasons

  1. The share price has fallen 90% over the past 5 years
Source: Yahoo Finance

2. 2020 is a presidential election year. Politicians spend a lot to get elected and re-elected. Maybe that political spending will offset the effect of the Corona Virus downturn.

3. Being a glass half full person, I believe we will experience a "V" shaped recovery from the Corona Virus downturn and business will want to spend on advertising to kick start their business again.

4. The management team. The Fields family have been running this company for decades through good times and some very tough times. They know the radio business and have proven they can navigate their way through the tough times. Plus they are putting their money where their mouth is and buying shares.

Conclusion

I look at this as a "Zero" or "Hero" gamble. The company might fall into bankruptcy and I lose my entire investment. Or the share price might quickly recover to $2 or $3 giving me a nice return.

I do not pay attention to technical indicators - but am going to start putting these charts at the bottom of my posts - so I can come back in the future and look at them to see if there is anything I can learn from them.

Source: StockCharts.com
Source: ShortVolumes.com

Further Reading

Entercom: Beyond 2008
COVID-19 is getting a lot worse than we thought, and we now believe the magnitude of the downturn will surpass the 2008 financial crisis.However, after some modelling, we believe ETM should be able to survive, even if it makes a loss for a couple of quarters.Even though advertising rates are down su…