TV - Grupo Televisa: 2023 Rally Could Indeed Continue For Some Time To Come

Summary

• Grupo Televisa, S.A.B. shares are already up almost 40% since the turn of the year.
• Valuation remains depressed, especially on the assets side.
• Growing margins and improving balance sheet bodes well for more share-price appreciation.

Intro

If we pull up a Grupo Televisa, S.A.B. (TV) intermediate chart, we see that shares successfully tested their 2020 lows in late December of last year. This means we potentially have a double-bottom reversal formation in play, which would mean that shares would rally above $20 over the next few years. Given where this stock has traded in past times ($30+ per share), the above projection is entirely possible.

If indeed, though, we have a double-bottom reversal playing itself out at present, we first need to see the stock's 10-week moving average cross above its corresponding 40-week. Furthermore, an uptick in the popular ADX intermediate trend-following indicator would also be needed to demonstrate that indeed shares are in their initial innings of a sustained bullish trend. Grupo Televisa has started 2023 exceptionally well with higher highs for 4+ weeks now. Therefore, as we approach the company's fourth-quarter earnings scheduled to be announced at the back end of this month, it will be interesting to see if the binary event can be the catalyst for momentum to continue.

Why is researching the above important? Because if indeed a double-bottom reversal pattern does not play itself out (Which may then dwarf into a triple bottom or a multi-year consolidation pattern), forward-looking returns will obviously be poorer. Furthermore, Grupo Televisa's 1.5% dividend yield would not be enough to cover the ravages of inflation if shares were to consolidate for a considerable period of time. Remember, with inflation remaining in the high single-digit range, investors still need to make a 6 to 8% minimum nominal return in order to realize a real return on their investment . Suffice it to say, timing an investment is more important than ever, especially in beaten-down plays such as Grupo Televisa, S.A.B.

As always, the market will reward TV stock for the pace of its earnings growth and even more so if the market believes shares are undervalued.

Profitability

Grupo Televisa, S.A.B.'s gross margin over a trailing twelve-month average now comes in at 42.12%, which means this key metric is in line with the averages we have seen over the past five years. Furthermore, if we continue down the income statement , Televisa's operating margin of 21.23% comes in significantly ahead of the company's 5-year average for this metric (17.85%). This is due in no small part to the aggressive cost-cutting stance management especially undertook in 2020. Rising margins in an inflationary environment are very encouraging, especially when combined with the 3%+ top-line growth rate expected next year. Suffice it to say, if sales can beat expectations in Q4 and beyond ($1.02 billion expected in Q4), this would really add fuel to Televisa's bottom-line growth profile due to how margins have been expanding.

Furthermore, recent initiatives in cable continue to lead to market share growth as we witnessed from the net adds of over 300,000 once more in Q3 . Suffice it to say, we have a clear growth trend in play here where management will continue to double down on its highest margin offerings. The long runway for growth in cable remains key as this segment is essentially buying time for the Sky segment to turn around. Then on the TelevisaUnivision streaming side (TV owns a 45% stake post the merger ), management expects double-digit growth once more this year. Again, given the runway for growth in TelevisaUnivision, the market will be astutely clued into how fast the streaming service can grow going forward.

Value

Shares of Grupo Televisa are currently trading with a book multiple of 0.57 and a sales multiple of 0.89. When dealing with stocks trading well under book value, a common problem is profitability and the inability to service debt payments due to poor cash flow. However, Televisa does not have this problem as it has been able to use its resources to buy back both company stock as well as bring down its debt-load (Debt to equity ratio of 75%). Therefore, with low valuation multiples right across the board and growth on the horizon, we see shares continuing to rise from current levels.

Conclusion

Shares of Grupo Televisa, S.A.B. have rallied hard this year as the market seems to have finally come to its senses with respect to the company's ultra-low valuation, especially on the assets side. The strong trending moves invariably take place from market highs, so it will be interesting to see if the upcoming Grupo Televisa, S.A.B. Q4 earnings print can jumpstart a rally to the upside. We look forward to continued coverage.

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