Friday, 27 July 2012

Glacier Media - Investment Analysis

Glacier Media Inc. is an information communications company that provides primary and essential information and related services through print, electronic and online media. Specifically, Glacier operates in three core business segments: local newspapers, trade information, and the business and professional information sectors.

Local Newspapers

Glacier's newspapers provide content to small, underserved local markets, where there are few, if any, competitors.  While the Medicine Hat News may not be known for its editorial gravitas, and may not treat readers to Pulitzer Prize-winning reporting, it is a primary source of information in its market, and, like many similar papers, has been a source of community-focused news for decades.  People will always be interested in what's happening in their local community, and advertisers will always be interested in reaching them, so the demand for these papers will exist for the long-term. 

This will likely allow small and some medium-sized community newspapers to avoid the dark fate of large metropolitan newspapers, which cover a broad range of regional, national and global issues, and compete with innumerable sources, most of which make their contently freely available online.  Glacier's free-of-charge local newspapers generate sales from advertising, not subscriptions, and the company doesn't depend on declining paid classified advertising.  Since most of Glacier's properties are situated in energy-rich Western Canada, the company is likely to enjoy a strong macroeconomic tailwind in the future.  In addition, the geographical concentration offers opportunities to sell regional and national-scale advertising, as well as other revenue and cost synergies.

Trade Information, Business and Professional Information

Financial publications occupy a rare niche, many of which have been able to prosper even while charging for content, and this commercial exemption doesn’t just apply to the big-name indispensables, such as the Wall Street Journal, the Financial Times of London and the Economist.  Glacier, for example, offers paid trade and business publications - notably The Western Producer, a go-to source for agribusiness coverage in Western Canada - largely in the areas of agriculture, energy and mining.  In many cases, these publications provide information that's necessary to managers, businesspeople and investors if they're to make informed decisions.  As long as these high-quality sources make money for their readers, they'll be able to charge money for their product. 

Return on Equity

Glacier's adjusted return on tangible equity has averaged over 100% for many years in the past, far exceeding the 10-12% that most businesses earn.


Investors in Glacier Media have little opportunity to get a first-hand feel for the senior managers: they don't hold forth on quarterly conference calls, they don't address analysts on the road-show circuit - indeed, they don't make any media appearances, at all.  The primary direct communication with shareholders comes in the President's Message section that leads off all quarterly and annual reports.  However, as with many who have an "actions-speak-louder-than-words" philosophy, Glacier's managers have forged a fabulous record in lieu of lofty verbal pronouncements. 

They have a superb record of capital allocation.  For the most part, the excess cash flow that Glacier has generated has been used to make acquisitions.  The acquisitions have been successful, as they have been made at attractive prices with a high return on capital.  When they have not made acquisitions, the company has paid down debt, repurchased stock (though, importantly, only when the stock has been undervalued) and it pays a healthy dividend.

They've also shown an admirable streak of independent thinking.  For example, despite the omni-presence of the internet, and the many obvious advantages it offers to news consumers, many continue to enjoy reading dead-tree newspapers, and advertisers continue to find the medium useful, too.  In addition, the physical presence of such publications serves as a marketing vehicle to maintain brand awareness and to drive online activity.

There's a noteworthy reason management consistently acts in the interests of shareholders: because they're owners too.  Indeed, Chairman Sam Grippo, CEO Jonathon Kennedy and one other Director together own 34% of Glacier's outstanding stock.


Glacier's maintenance capital expenditures are in the neighborhood of $5 million, so in 2011 free cash flow amounted to $0.44 per share.  The company's large acquisition of several Postmedia properties closed late in the year, so very little profit from the new purchase made it into 2011's final tally.  It would not be outlandish, then, to assume FCF of around $0.55 in 2012.  Net debt as of the first quarter of 2012 was $1.40 per share, giving the company an enterprise value of $3.50-3.70 or so at the stock's recent market price.  Conservatively projecting that Glacier generates $0.55 of FCF in 2012, $0.60 in 2013 and $0.65 in 2014, and assuming that the company does nothing but pay down debt, where would that leave shareholders at the end of that timeframe? 

In this scenario, debt would be paid down entirely, with a total of $0.40 to spare.  Assuming a 12x multiple on $0.65, the shares would trade for nearly $8.00.  Importantly, with no debt on the balance sheet, all FCF would be available to return to shareholders.  FCF of $0.65 on today's share price would be the equivalent of having a bond with a coupon of over 30%.  Not bad for a steady, low-risk investment.  (In practice, of course, the future will unfold at least somewhat differently: the company will almost certainly close more acquisitions over the next few years, for instance).


Warren Buffett, who once considered newspapers among the finest possible investments, later lamented that competition from cable and satellite channels, and especially from the internet, had made the long-term economics of the industry "terrible."  Recently, however, he's reentered certain corners of the newspaper market, though only on a small scale.  In areas where there's a strong and enduring sense of community - for example, in his own hometown of Omaha, where he recently bought the World-Herald - newspapers have a good chance to remain profitable for the long-term.  Few people can make the same boast as Glacier's management: they beat the Oracle of Omaha to this insight.

It may become more difficult for Glacier to grow by (cheap) acquisition in the future, now that there's a broader understanding that not all newspapers face a bleak financial future.  However, Glacier's existing assets, management team and stock price offer a low-risk, high-reward opportunity for investors.
Sources: 2011 Annual Report, 2012 Q1 Report

There's ongoing commentary on Glacier Media: A 2012 Q2 update; a 2012 Q3 update

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