Saga Communications Stock Snapshot
This week I took a look the radio broadcaster Saga Communications that is trading at 0.44x book value
Saga Communications is a radio broadcaster with about $75M market capitalization. They own radio stations in 28 markets, with 82 FM stations, 32 AM, and 79 metro signals. Saga broadcasts a variety of genres: classic hits, adult hits, top 40, country, country legends, mainstream/hot/soft adult contemporary, pure oldies, classic rock, and news/talk. Like many radio and TV broadcasters, Saga is trading at a large discount to book value. The stock price is around $12, while the last reported book value figure was $27.32.
Radio stations are out of favor because streaming has made them obsolete. Plus, people most often listen to the radio in the car, so work from home could further reduce listenership. However, a decent amount of people still listen to the radio so these companies are still pretty profitable. I think radio and TV stations can manage the decline with good capital allocation.
Looking at Saga’s most recent earnings, revenue was down slightly this year. However same station results were slightly worse since the company acquired some stations which boosted the overall revenue figure. On the earnings call, SGAs CEO said Main Street is hurting, some of them are deciding between payroll and radio advertising. Also on the call, the CEO explained company was late to embrace digital, but they are making progress rolling that out now. During the past year, operating cash flow was down and capex spend went up. This lowered Saga’s FCF to $1.7M compared $11M the year before. As I mentioned, revenue was down slightly, but COGS and operating expenses increased which exacerbated the decline in profits. Also the earnings call said political spending was lower than in 2020 due to battleground states overlapping with Saga’s stations more in the previous election than in 2024.
Saga’s return on assets have been below cost of capital since 2017, so I think it is better to value the company based on its assets instead of earnings. Currently they have $166M in equity, no debt, and $29M cash. Average P/B has been below 1 since 2017, but varies widely, usually trading above book value at some point each year. Right now SGA is currently trading at historically low P/B of 0.44x. For a more accurate valuation, I would have to evaluate replacement cost of their properties/equipment, and the value of the radio licenses.
As for shareholder returns, Saga mentioned on their earnings call that they do a regular dividend, sometimes special dividends, and is open to buybacks. The company has paid out around $20M in dividends past couple of years. Latest quarterly dividend was $0.25, which would put Saga’s dividend yield at 8.3%.
I feel like Saga’s large cash reserve and no debt bring margin of safety. My prediction is that radio and TV broadcasters will consolidate now Trump is in office. Other examples of radio/TV stations that I have looked at, such as Urban One and Gray Television have a lot of debt. It made since for these companies to have a lot of debt when they had steady cash flows, but with the industry in decline the debt scares me. Because of this, it seems like SGA would be a juicy acquisition target with its clean balance sheet.
Stocks mentioned: SGA 0.00%↑ UONE 0.00%↑ GRAY 0.00%↑
I took small position a while back in my IRA when it was announced that founder died, thought someone might want to take this private but so far that does not look like it’s happening
If it gets closer to net net i would consider swing at it in my main portfolio
yeah stock chart looks like a falling knife. only bet would be a take out / take private.