National CineMedia: Assuming Coverage at Outperform -- Credit Suisse

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Action/Event: We assume coverage of NCMI, maintaining an Outperform rating and raising our TP to $21 from $18. We decrease our 2016 adj. EPS forecast to $0.57 from $0.60 and forecast $0.70 for 2017 adj. EPS. We view the growth strategy of NCMI in attracting ad dollars out of other competing media, broadening its marketer base and investment in IT platforms to drive value for marketers, as compelling growth engines for the company

Post-Screenvision Strategy: Since the March 2015 Screenvision deal termination, the company has focused its investments in IT and data analytics investments that we believe will drive value for marketers and ad agencies, which in turn will drive CPMs higher and shift ad budget dollars toward cinema. Coupled with the enhanced visibility of cinema advertising from the formalized cinema upfront process and recent partnership with STRATA, we see NCMI as poised to benefit from even small shifts in ad budgets toward cinema, given the relative scale. Further, the company remains a clear derivative play for the premium offering-fueled growth and M&A of exhibitors.

Catalysts: Catalysts include scatter results, box office results, IT platform rollouts, and new CEO strategy announcements and execution.

Valuation: NCMI currently trades at 7.6 times 2016 EV/EBITDA and 26.5 times 2016 P/E, while we value the stock at $21, or 2016 EV/EBITDA and P/E multiples of 9.1 and 36.8, reflecting higher utilization and CPM rates which we view as underappreciated by the market. Our valuation is supported by our DCF valuation (terminal growth 0.75%, WACC 9.75%).

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