A Starter Position in Glacier Media (GVC.to)

This is the last of a series of posts I’ve written over the weekend discussing a number of changes to my portfolio over the last two weeks.

Why I took a position in Glacier

While I love it when my stocks go up, it can be frustrating when they go up before I have a chance to talk about them. I bought a starter position in Glacier last week.  Here is the buy for my practice portfolio:

I had been planning to say something about Glacier but I wanted to spend a little more time on both the name and the sector to make sure it was indeed a stock I wanted to hold before talking about it. I’m still trying to get comfortable with this whole newsprint theme and Glacier has a few warts on it that I’m still not completely sure about.

However I waited too long.  On Friday the stock jumped 10% and closed the day at $1.45 per share.

I have no idea why the stock popped. I thought for sure someone on BNN must have recommended it, but I scoured their on-line videos and found nothing. Who knows, maybe someone said something at a conference or a presentation. We will probably never know.

The Business

Glacier provides local newspapers and trade periodicals throughout Western Canada. What’s kind of neat about the story is that I am familiar with a number of their papers. I grew up in rural Alberta and every week we got the Rockyview Weekly in our mail box. As a citizen of Calgary, I read FFWD on a fairly regular basis. As an engineer, I am familiar with their Nickle’s Energy Group periodicals. As an investor, I have subscribed in the past to the Northern Miner (when I was big into mining stocks), and I pick up the Western Investor on occasion.

These are all solid publications for the niche they intend to fill. The trade periodicals are informative, and these little community newspapers are what they are – they give local news and advertising. And I just don’t see how they go away – I mean I can Google international or national or even city news, but if I want to know what’s going on in Hinton Alberta what am I going to do? The local newspaper, and now its website, are about the only places I’m going to find anything.

Valuation

When I bought the stock at $1.25 it traded at an enterprise value of $235 million. It’s a bit higher than that now, about $255 million. EBITDA was about $50 million last year so at that level going forward the company is trading at 5x EV/EBITDA. EBITDA was weaker in the first half of 2013, at $21.3 million, which on an annualized basis would put the multiple at about 6.3x.

Those multiples would be fair for the newspaper business, but there is some indication they are too low for the trade publication business. I had actually kind of been half following Glacier for a couple of months but couldn’t really get that interested in the stock because while it seemed only marginally cheap. Then I found this article, published on SeekingAlpha, and realized that there may be some hidden value (the article is going to go subscription only in another 2 weeks, so read it now not later!)

The basic idea presented by the article is that while the newspaper business is probably worth 5x EBITDA, the trade publication business is probably worth more. This is obscured by the financials as the company doesn’t break-out the two businesses. Also obscured by the financials is the current EBITDA, due to the IFRS accounting changes for Canadian companies, Glacier is reporting their joint ventures as equity investments. Its only by digging into the footnotes that you get a true EBITDA estimate that includes these JV’s.  Finally, Glacier has been able to monetize its on-line content and

One thing here that is a yellow flag is that the company is in the middle of an accounting issue with revenue Canada. My understanding is that they were able to reduce taxes by taking a $38 million tax shelter between 2008 and 2011. The Canada Revenue Agency is now reviewing this, and potentially there is a $40 million hit if they end up having to pay the full amount.

There is a good discussion about Glacier on a Corner of Berkshire and Fairfax board.  There is an explanation of the tax issue, a discussion of management (who apparently are big Buffett followers), a fairly recent link to insider buying (management owns a little more than 30% of outstanding shares) and a link to a recent comment by Tim McElvaine.  For some reason the Corner of Berkshire folks won’t let me join their little group (I’ve tried to register on a few occasions and never get a response or valid login) but I’ll try to get past that and admit its a good research source.

Conclusion

This stock is not a no-brainer. I’m waffly on it, which is why its taken me so long to mention it. Even though its risen from my initial purchase, I’m reluctant to add to the position without some positive news to back-up the move. I like the idea that the trade business is a hidden asset obscured by the accounting. I also like that the stock has declined significantly in the last 6 months, to the point where I think a lot of the negatives are priced in. Finally I like that management owns a bunch of shares. But I don’t really know exactly what the trade business is worth, a negative tax ruling could hit the stock, and the price is cheap, but its not in the “stupid cheap” category. It’s the sort of position I will sit on as long as its working, and if something comes up that justifies adding, then that is what I will do.