AMC Nets Ad Growth at Top End of Industry

AMCX national networks revenue and AOCF provides upside but broader market anxieties remainAMCX reported total company earnings of 114 vs our 098 estimate and the forward outlook was robust with 3Q advertising growth expected to improve off of 2Q and with recurring affiliate growth in the double digits While there are certainly commonalities between AMCX and industry peers who are suffering from marketdriven anxieties this week we are encouraged by AMCX39s strategic content strategy its valuation relative to growth and its strengthening balance sheet That said we are modestly lowering our 3Q estimates though 2016E EPS goes slightly higher Given the recent multiple compression in the space we are also modestly reducing our target 2016 PE multiple to 16x down from 17x which leads to our new TP of 86 from 92Ad growth at AMCX remains at the high end of industry Due to the strong 2Q results of Mad Men AMCX remains the sector frontrunners in terms of ad growth Further 3Q commentary was for a sequential improvement in ad growth trajectory over 2Q39s lowsingle digits largely given the expanded programming lineup Fear the Walking Dead HumansMidteens affiliate growth in line with our estimates driven by carriage renewals The company39s 2Q affiliate growth was in line with our estimate for midteens growth the quarter also benefited from sales of Halt and Catch Fire AMCX39s 3Q outlook is for doubledigit affiliate fee increases slowing somewhat from 2Q given cycling of recent carriage renewalsMargin trajectory continues to be a strong point Excluding BBCA expenses were up midsingle digits YoY in line with our estimate AMCX is managing to quotbroadly stablequot margins with 2014 levels which in our view may leave room for some YoY margin expansion given the progress that AMCX has made on cost discipline yeartodate Netnet for next quarter we are looking for overall AOCF growth of 22 YoYComment on subscriber trends When asked about the subscriber trends AMCX noted it is seeing similar trends to the industry which we interpret to mean that management is seeing similarly modest declines in basic video subscribers though AMCXspecific nuances were cited on the callUpcoming slate continues momentum AMCX noted the upcoming Fear the Walking Dead which leads right into Walking Dead and the Humans impressive debut in June where 7 more of those episodes fall into the 3Q management is also excited about docudrama Making of the MobModestly lowering target multiple While we are slightly increasing our 2016E EPS estimate to 550 we assign a lower 16x target multiple to better reflect the media multiple compression which implies a TP of 86CLICK BELOW TO ACCESS RESEARCH REPORTPRESENTATION including important disclosuresAMC Networks Inc quotMaking of the Mobquot MentalityPrepared by Nomura Securities International Inc For complete details of the research together with the associated important disclosures analyst certification valuation methodology and discussion of risks please click hereThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom management or associated bloggers amp160

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AMC Nets Ad Growth at Top End of Industry

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Anthony DiClemente

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