Glacier Media: Shares Are Cold, Product Creating Hot Investment Opportunity

Shares of Glacier Media (GLMFF.PK)(GVC.TO) ("Glacier" or "the company") are cold product in this market of stocks, trading at decade lows after a summer sell-off. Famed value investor Walter Schloss preferred buying stocks not at 52-week lows, but at multi-year lows. If Mr. Schloss were here with us today, I suspect he'd be taking a look at Glacier shares.

Glacier shares that trade over-the-counter in the US are quite illiquid; alternatively, the Canadian issue provides ample volume to build a decent position, if one were so inclined.

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The Business

Glacier is a media business in transformation, moving from a traditional print model to a scalable digital platform distribution model. According to its most recent quarterly filing:

Glacier Media Inc. is an information communications company focused on the provision of primary and essential information and related services through print, electronic and online media. Glacier is pursuing this strategy through its core business segments: the community media, trade information and business and professional information sectors.

The value proposition at Glacier is made up of several components. It appears that Glacier is considered a newspaper company by the greater investment community, one of the most reviled sectors in the investment universe today. While Glacier does operate a number of community based newspapers, discerning investors must dig deeper to find the compelling value underlying its shares. Namely, the business and trade journals it publishes and a number of recent investments in scalable, internet-based businesses.

I look at Glacier as one part Lee Enterprises (LEE) (community newspapers), one part Daily Journal Corp. (DJCO) (business/trade publications) with a splash of web start up. If Glacier were a drink, it would make for a delectable ! cocktail.. Instead, its shares make for compelling investment aperitif at current prices.

Valuation

Currently priced at $107 million and encumbered by $118 million in net debt, Glacier has an enterprise value of $225 million. When looking at the underlying fundamentals, Glacier appears quite cheap. It trades at a parsimonious 5.1x TTM EV/EBITDA, 0.7x TTM EV/Revenue and 0.3x book value.

We then need to drill down a bit further to assess the community newspaper and the business/trade journals segments. Unfortunately, Glacier groups its trade publishing assets with its newspaper assets. In my view, the trade publishing assets likely have higher margins than the newspaper assets given they provide recurring subscription revenue whereas the newspapers rely solely on advertising revenue.

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We do get a clue from management, however, where it indicates that 56% of its EBITDA comes from business information operations which I take to mean its trade publications and various business information services such as Fundata and Ecolog.

Collectively, Glacier generated $21.2 million EBITDA in the first-half of 2013, of which 56% represents $11.9 million, or $23.8 million annualized. Comparables such as Daily Journal Corp. and to a lesser extent, Pearson plc (PSO) trade at EV/EBITDA multiples of 12x and 11.5x, respectively. If we assume 10x for the Glacier's business information services is a better proxy of value, we arrive at $238 million valuation for the segment.

The remaining EBITDA generated by the newspaper assets, $9.3 million, or $18.6 million annualized, should fetch a lower multiple, probably in the 4 to 5x range given it is in a declining segment. Therefore, the community newspapers are probably worth in the neighborhood of $85 million. These assets, however, do benefit from being the only game in town in terms of a local ! informatio! n source, generally fitting the investment thesis outlined by Warren Buffett in recent newspaper investments.

All told, I think Glacier is worth about $325 million. After considering net debt of ~$120 million, Glacier's equity is likely worth about $205 million, indicating about 90% upside from current levels.

One way management may help unlock value would be to simply report separately the trade publishing assets in the segment reporting in the footnotes to the financial statements. That would help investors assess each segment on its own, and make the value proposition more transparent.

Paid to Wait

While there has been M&A activity in the newspaper segment in the US, Canada's newspaper industry has yet to participate in any meaningful upside. I am not sure how long it will take for the market to recognize the value in Glacier's shares, so investors can take solace in Glacier's large, well-covered $0.08/share ($0.02 paid quarterly), providing investors a 'get paid to wait' opportunity.

At current prices, the dividend yield is 6.5%. In my view, the dividend should be considered safe, as management has indicated a number of cost containment initiatives, the underlying businesses cash generation abilities and from a balance sheet that is devoid of any large, near-term maturities. The next large debt repayment occurs in 2015.

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Accounting Changes

Due to an accounting change beginning January 1, 2013, Glacier is now required to account for its investments in joint ventures and associates under the equity method of accounting. Prior to the change, Glacier proportionately consolidated its share of the JVs' earnings.

Now, under the equity method, Glacier no longer reports its pro rata share of the JVs' revenues expenses in its income statement, rather it records its share of its JVs' earnings less its share! of divid! ends received on its balance sheet. This change artificially minimizes the scope of its business activities from an income statement perspective.

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As we can see, Glacier's investments in JVs and associates make up $66.5 million in net asset value, nearly two-thirds of its $106 million market capitalization. Note that I used the numbers derived from the proportionate consolidation approach in the segment information above prior to adjustments for the equity method of accounting. Therefore, to add the net asset values of the JVs to my valuation above would be double counting. I point out the issue as a possible reason for investor confusion for financial statements reported post-accounting change.

Conclusion

The investment thesis here is pretty clear. Glacier is a quality business, trading at bargain price. Investors are shielded from further downside risk from the juicy and well-covered 6.5% dividend at current prices.

While the newspaper business is in flux, we have seen numerous deals where sophisticated investors recognize the value that community dailies represent, as they have unique and enviable moats from being the only game in town for local information.

The business and trade journal segment, however, is really what makes Glacier a buy at today's prices. Targeted, information rich and a multi-faceted distribution model (print, web, mobile) to a less price-sensitive customer (businesses), is the reason to own Glacier. Throw in some of its recent internet business investments such as Social Shopper and Weather INnovations, and the Glacier value proposition becomes very well-rounded.

Like its name, Glacier shares are cold product making them undervalued coincident with low risk. As a value investor, I will drink to that.

Source: Glacier Media: Shares Are Cold, Product Creating Hot Investment Opportunity

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLMFF.PK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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