14 November 2008
Polish Media Sector
Entering the storm
Lukasz Wachelko, CFA
Research Analyst
(48) 22 579 8731
lukasz.wachelko@db.com
We take a cautious view on the sector; Sell Agora, Hold TVN
We reinstate estimates of Polish media stocks with the following 12-month target
prices/recommendations: Agora PLN 18.8 (Sell) and TVN PLN 13.9 (Hold). We
expect a Polish macro slowdown, with the ad market dropping 2% in 2009,
spurring our cautious view on the media sector as a whole. As we expect stronger
fundamentals in the TV segment and price support from a share buyback at TVN,
we prefer TVN over Agora. This note marks the transfer of coverage to Lukasz
Wachelko.
Deutsche Bank AG/London
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factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at http://gm.db.com or by calling 1-877-
208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
Forecast change
Top picks
Agora (AGOD.WA),PLN19.41 Sell
Companies featured
Agora (AGOD.WA),PLN19.41 Sell
2007A 2008E 2009E
DB EPS (PLN) 1.82 1.34 0.61
P/E (x) 25.6 14.5 31.7
EV/EBITA (x) 19.1 11.1 24.1
TVN (TVNN.WA),PLN12.65 Hold
2007A 2008E 2009E
DB EPS (PLN) 0.71 1.00 1.15
P/E (x) 34.3 12.7 11.0
EV/EBITA (x) 18.7 9.3 8.7
Global Markets Research Company
2009E Polish GDP growth of 2.9% = ad market contraction of 2%
In 2009 we expect Polish GDP growth to decelerate to below 3% for the first time
since 2001-2002. Moreover, we expect the ad market growth to turn negative
given: 1) ad spend’s partial dependence on budgeting processes abroad (global
crisis hitting multinational players); 2) a high share of ad spending for the most
affected; 3) guidance from our Polish consumer companies; and 4) a warning from
Agora on 2H 2008 market performance. With the general 2% drop we forecast,
we expect the weakest performance to come from newspapers (-10%) and
(relatively) strong TV (flat) and online (+35%) sectors.
2009 earnings outlook: Flattish at best in our view
As we expect ad market contraction, it would be overly optimistic to look for
earnings growth going into 2009. However, we believe the slowdown should have
very different effects on each company. While we expect TVN to deliver flattish
profits supported by a superior business model (TV + online) and flexible cost
base, we forecast Agora’s adj. EBITDA and earnings to fall in 2009E by 26% and
36%, after 16% and 18% drops in 2008, respectively. We note that Agora has a
net cash position and available credit lines which while offering greater security
and expansion potential, also open up potential risk of premium priced M&As.
Valuations and risks
Following an average 55% YTD share price contraction for the two companies, the
growth premiums in Agora and TVN multiples have evaporated on our estimates.
However, with the Polish economy having just entered the slowdown phase, we
believe the risk of earnings disappointments is significantly higher than in Western
Europe. Applying 50/50 weights to long-term DCF and 2009E valuation implied by
the multiples of respective European peers, we set 12-month share price targets
of PLN 18.8 for Agora (Sell) and PLN 13.9 for TVN (Hold). Risks: hard-landing of the
Polish GDP and ad market. Company specific risks/opportunities include M&A
potential for Agora (strategically positive, but likely short-term dilutive) and a PLN
500m/35m share buyback at TVN.

Table of Contents
Executive summary 3
Outlook ....................................................................................................................................3
Valuation ..................................................................................................................................3
Risks ........................................................................................................................................3
Polish ad market 4
TVN vs. Agora 7
Scenario analysis 9
Agora 10
TVN 21
Appendix A: Polish advertising market 32
Growth prospects in the long haul..........................................................................................32
TV advertising: largest piece of the pie ...................................................................................32
Press advertising: sinking readership......................................................................................34
Internet advertising: still small but with great potential ..........................................................35