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| | Gannett Co., Inc
Description of the Business
Gannett is an international news and information company. The company publishes 85 daily newspapers in the USA, including
USA Today, and almost 900 non-daily publications. Besides the company operates websites offering news and information.
In the UK the company publishes 17 daily newspapers and almost 300 non-daily publications. In broadcasting the company operates 23 television stations in the US.
Analysis of Competitors
Its competitors are:
- The New York Times Company (NYT)
- The Washington Post Company
- Lee Enterprises (LEE)
Competitive Advantages
Most newspapers readers tend to be loyal and are reading the newspaper every day. This leads to stable cash flows. However due to the Internet there is a shift of users using the Internet for reading the latest news and advertisers are shifting from newspaper ads to Internet advertising.
As a result the stable subscription based revenues could be replaced by lower advertisement income on the Internet.
Financial Analysis
The revenues of Gannett have decreased in recent years due to lower advertisement income. In addition Gannett has huge amount of unsecured debt, which has to be financed from the reduced cash flows. They offer a huge dividend but it is questionable whether they can keep the dividend.
Risks
Gannett faces the following high risks:
- Revenue is decreasing and it is uncertain whether revenues will increase if the economy will recover or by their transformation to a digital media company.
- They have a large amount of unsecured debt with the risk that they can not refinance it or they will violate debt convenants. This could lead to a significant dilutution or even bankruptcy
The risk rating of Gannett is high. We recommend to only invest small amounts in Gannett and to avoid large positions in newspaper stocks.
Management Team
Craig Dubow is Chairman and CEO since 2005. We have a negative rating on management as they stated in their 2007 annual statement that the balance sheet was strong. This is incorrect because they had a huge amount of debt and diminishing cash flows, which makes them vulnerable for an economic downturn.
We also have doubts about the strategy of buying all kinds of Internet companies instead of improving the profitability of their own operations.
Valuation Calculation
Gannet has a cash flow value of about $25. However due to their huge debt we assign a negative risk value of $-10 related to balance sheet and financing risks.
The total value of a Gannett share is $15. |
