The July 6 decision by a lower court in Mexico to
deny the world's richest man entry into the
country's television market
was strongly welcomed by investors in Televisa (
TV
,
quote
), the dominant player in the domestic market.
[caption id="attachment_67771" align="alignright" width="300"
caption="Laguna Televisa facilities in Torreon, Coahuila, Mexico"]
[/caption]
Televisa dominates the market in the world's largest
Spanish-speaking country, with about 70% of households against the
next closest competitor, TV Azteca, with about 20% of
households.
World's richest man Carlos Slim, whose America Movil (
AMX
,
quote
) controls upwards of 70% of the mobile phone market and 80% of
land lines, has been trying to enter the television market for
years. The recent decision means he will have to go back through
the licensing process which could push plans back another year or
more.
This is undeniably good news for Televisa's market dominance,
but there is little doubt Slim will eventually win approval and
enter the market. Most likely concessions will need to be made
allowing some competition or discounts in the phone market to allay
fears of monopoly control. Further, the incoming administration of
Enrique Pena Nieto could be quick to dispel the idea of favoritism
to Televisa by working with Slim to craft a licensing deal. The
incoming president is married to a telenovela star and close with
several board members of the company.
Televisa is the largest media conglomerate in the
Spanish-speaking world with operations principally in Mexico and
the United States. Revenues at the company grew 11.7% year over
year in the second quarter with strong operating margins of 28%,
better than the performance of 88% of large cap peers in the same
period. The depreciation in the peso hit earnings but is not
expected to be a problem for the rest of the year. Content revenues
were off slightly but subscription services and licensing helped
boost overall growth.
Royalties from the Univision licensing agreement have been a
growing segment of Televisa performance. Revenue for the deal was
$225 million in 2011, up from $156 million in 2010 and represented
about 5% of total sales.
Valuation for Televisa is already well above peers with a
trailing price-earnings of 26 times compared to just 19 times for
the industry. The higher valuation is justified by revenue growth
almost double that of the industry average of 4.7% and a fairly
strong dominance in its niche. This rationale could be tested when
Carlos Slim wins approval or with the entry of another
competitor.
Speaking of another competitor… MundoFox, the News Corporation (
NWS
,
quote
) attempt to tap into the growth in the Spanish-speaking market is
set to launch in the United States in August. The station has
already signed L'Oreal, Toyota and T-Mobile as
major advertisers for the network
and is offering advertisers cross-promotion on a strong lineup of
web, social media, and network assets. The new station will test
revenue expectations from Televisa's licensing deal with Univision,
now the dominant player in the United States.
Televisa is up about 2.9% over the last year against losses in
emerging market funds but lags the 5.1% return in the overall
Mexican market. The company should still benefit from strong
economic growth in the country and the increasing market power of
Latinos in the United States. Still, there are reasons to be
cautious and investors may want to re-evaluate their position with
the entry of key competitors.
