Team die erste Studie noch heute - 500 Beiträge pro Seite

[3030]

Heute ab 1930 Uhr ist die erste Studie auf der Homepage von Team verfügbar.
Quelle Herr Forstner derzeit bei finance online.
MfG3030

[Dr.Klitschko]

und die Termine:Wir haben bei unserer Öffentlichkeitarbeit tatsächlich den Nachteil, daß wir als US- Unternehmen unsere Meldungen nicht kommentieren dürfen. Trotzdem - wir werden jetzt von einer PR Agentur betreut, die die Pressearbeit verantworten wird und mit Ausgabe der ersten Studie aktiv wird.
Die "Events im August:
Geplante Termine im August:
7. August: Follow Up and New Study of VMR
15. August: 2nd quarter Figures
16. August 13:30: Chefsache with Mr Puschnig in N24 (30 Min)
End of August: Road Show in Europe with CEO
End of August: Study of Sal. Oppenheim
August: Press campaign in Germany
Invitation for Media Seminar in L.A.
Zufrieden, wir werden aktiv!

[3030]

Hier die Studie
CIBC World Markets Inc., P.O. Box 500, 161 Bay Street, BCE Place, Toronto, Canada M5J 2S8 · [phone]
CIBC World Markets Corp., One World Financial Center, New York, NY 10281 · [phone] [phone]
Equity Research
Investment Conclusion
· We are initiating coverage of TEAM Communications
Group with a Buy rating.
· TEAM is an independent TV production company that
typically develops programming ideas with niche cable
networks in mind. These networks are looking for original
programming at a reasonable cost that plays well to their
specialty audiences.
· By targeting this market, TEAM limits its financial exposure
to any one show and avoids competing with large media
conglomerates. Another plus: we believe demand for cable
programming is poised to accelerate due to the formation of
new cable networks (encouraged by cable system upgrades
which have increased channel capacity).
· Since raising $32 million of equity in November, TEAM has
laid the groundwork for an aggressive expansion. It has
added two seasoned TV executives to its management team,
opened a German operation, arranged for representation by
CAA, and formed exclusive deals with outside producers.
· These changes have energized the organization and
accelerated the pace of development activity.
· TEAM’s future challenge is to secure firm orders for several
of the shows in active development so that it can begin the
production process. If successful, its EPS should grow
dramatically in 2001.
· Our target price of $12 is predicated upon a P/E of 13X our
2001 estimate of $0.90. This 13 multiple is a 15% discount
to our long-term growth forecast of 15%.
· We think the stock should head toward that price as orders
for new shows are announced, because this would improve
2001 earnings visibility. Other potential catalysts include the
successful negotiation of acquisitions that are accretive to
EPS—something management is actively pursuing.
Entertainment
Sharon Williams, New York [phone]
Bronson Byi, CFA [phone]
July 31, 2000
TEAM Communications
Group
Initiating Coverage With A Buy
Rating: BUY
TMTV-OTC (7/31/2000): $6 13/16
52-week Range: $19 1/2-4 1/16
Shares Outstanding: 17 Million
Float: 10.6 Million Shares
Market Capitalization: $116 Million
Dividend/Yield: Nil/Nil
Fiscal Year Ends: December
Book Value: $3.46 per Share
2000E ROE: 12.0%
LT Debt: $0
Preferred: Nil
Common Equity: $57 Million
Company Description:
TEAM Communications Group is an
independent TV production company
headquartered in Los Angeles. It has
established production and distribution
capabilities in the UK and is building a
presence in Germany.
Earnings per Share
1999 ................................................... $0.41
2000E................................................. $0.41
2001E................................................. $0.90
P/E Ratio
1999 .................................................. 16.6X
2000E................................................ 16.6X
2001E.................................................. 7.6X
00-7224 © 2000
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2
INVESTMENT THESIS
We are initiating coverage of the independent television production company, TEAM
Communications Group, with a Buy rating. TEAM was founded by Drew S. Levin in
February 1995. Since its August 1998 IPO (which raised $7 million for TEAM),
management has delivered strong revenue and earnings gains. Indeed, EPS rose 105% in
1999 fueled by 77% revenue growth.
This growth was driven largely by TEAM’s increased financial flexibility. Indeed, after
the IPO, TEAM was able to retain more of the worldwide rights for the programs in its
lineup and to expand its geographic footprint with the acquisition of Dandelion in the U.K.
and the formation of Team Dandelion LTD headed by industry veteran Noel Cronin. In
addition, TEAM’s programming library also posted sharp sales gains.
TEAM Has Laid The Groundwork For Aggressive Expansion
Management turned to the public markets again in November 1999. This time, though, to
Germany’s Neuer Markt, where it raised $32.4 million (net proceeds). Since then it has
laid the groundwork for an aggressive expansion of its TV production operations:
· TEAM hired several seasoned TV executives including James Waldron (as President
of TEAM Entertainment) and Philippe Perebinossoff (to run its long-form division).
Both bring a wealth of experience that should open doors for TEAM. Waldron was a
top agent at Creative Artists Agency (CAA) where he headed international and first-run
programming and oversaw the packaging of shows for cable networks.
Perebinossoff was head of development and production for ABC’s TV Movie group
for the past eight years.
· TEAM opened an operation in Germany—Europe’s largest TV market—and named
Erhart Puschnig to run it. Puschnig is well regarded in European media circles as a
major force behind the launch (and ultimate success) of Germany’s most popular
commercial network, RTL+. At TEAM he is charged with creating programming for
international markets, as well as managing and developing strategic partnerships with
European broadcasters and media companies.
· TEAM arranged for exclusive representation by CAA, one of Hollywood’s top three
talent agencies, which gives them greater access to CAA’s literary properties as well
as the writers, directors, and actors that CAA represents. This should help TEAM
produce shows with greater drawing power more quickly as TEAM is now one of only
a handful of production companies that receive CAA’s priority attention.
· TEAM also formed exclusive deals with outside producers of television movies, mini-series
and dramatic series. These include Gary Hoffman (former head of Fox Network
movie division) and Neil Russell (former President of Carolco Television Productions
and Multimedia, Inc.). We believe TEAM is close to signing a third similar deal.
TEAM’s Challenge Is To Move Shows From Active Development Into Production
These changes have brought a high level of energy to TEAM and accelerated the pace of
development activity. TEAM’s challenge going forward is to move as many TV shows as
possible from active development into production. This typically happens after a domestic
cable network or European network commits to air programming that TEAM has pitched
to them. In the case of a TV series, TEAM usually insists upon a minimum order of 13
episodes and a license fee that covers 40%-60% of the series production cost. In return,
the buyer gains the exclusive right to transmit the programming 10-12 times over a 3-6
year period. TEAM then looks to cover the rest of the cost (and ultimately to turn a profit)
by selling the programming in foreign markets and eventually as reruns domestically.
TEAM also supplements its internal production capabilities by purchasing partial rights to
outside productions.
With Each Show’s Downside Risk Limited…
If TEAM successfully increases the number of shows it produces, we believe its earnings
power should grow dramatically. In sharp contrast to the high-stakes game of movies and
prime-time network TV programming, losses from disappointing programs produced in
this manner are minimal. Therefore, we believe the risk of earnings being pressured while
output increases is limited.
In fact we think most of the TV programs that TEAM has created have produced a profit.
That’s because production budgets are modest (and easy to control), and marketing costs
are borne by the networks that license the shows. Of course programs that deliver sizable
audiences and remain on the air for several years ultimately generate far greater profits
than those that are cancelled after the first 13 episodes. But even those that are cancelled
quickly can sometimes generate small profits.
…EPS Should Grow Dramatically When The Production Slate Increases
EPS declined $0.07 in the March quarter and is likely to fall $0.04 in June. This first half
pressure was due solely to the higher number of shares outstanding. Absent any accretive
acquisitions, we forecast flat EPS in the September quarter. However, management
expects EPS growth to return by 4Q00. See Exhibit 5 for details.
Next year, we believe EPS could grow dramatically as the increased development activity
pays off in the form of a larger production pipeline. Indeed, we project 119% growth to
$0.90 per share in 2001. This is not unprecedented; EPS jumped 105% in 1999. To reach
our 2001 forecast requires that Call of The Wild is renewed, features from two recently
acquired libraries are packaged and sold domestically, and three new series and two new
movies-of-the-week are placed on the air in the U.S. TEAM must also successfully sell
these programs (and a few others for which it may purchase the international rights) in
foreign markets. We think this is achievable given TEAM’s active development pipeline,
the large number of potential domestic buyers, and its capable international sales team.
In the three years following 2001 we think 15% CAGR growth is possible. Management
hopes to meaningfully exceed this rate. In fact, it is targeting 25% EPS growth. However,
we prefer to wait for better visibility—in the form of firm orders for its programs, the
active production of them, and/or concrete ratings results—before getting more aggressive
with our forecasts.
Accretive Acquisitions Could Provide Additional Upside
It is important to note that our EPS forecasts do not include acquisitions. The few analysts
who already follow TEAM’s stock assume management can negotiate and close several
accretive deals in 2000 and 2001. Certainly, management views acquisitions as a source
of future earnings growth. When considering acquisitions, it looks for independent
production companies with positive cash flow from operations, commercially viable TV
programming libraries, and reasonable growth opportunities (that could be pursued with
additional financial support from TEAM).
TEAM is beginning to build a good acquisition track record. In October 1999 it acquired
U.K.-based Dandelion Distribution, Ltd. This acquisition brought TEAM a library of
3,000 hours of programming, an experienced European sales force, and a strong
production slate. The deal was immediately accretive to EPS. It also recently purchased
the Marquee library (29 network movies from the 1970s and 1980s) which we expect to
contribute solidly to 2000 and 2001 EPS.
We share management’s enthusiasm for growth via acquisitions as we believe many
independent producers are financially constrained and would benefit from being part of an
organization with a healthy balance sheet and a good distribution arm. Therefore, it seems
likely that TEAM could strike accretive deals. However, such deals are inherently difficult
to forecast, and we can find no logical way to quantify the upside or pinpoint the timing.
Hence our decision to exclude acquisitions until they are announced.
Our Target Price Is $12
As shown in Exhibit 1, TMTV currently trades near the mid-point of its historical P/E
range based on trailing-twelve-month earnings. Given the early stage of the company’s
development and the limited research coverage to date, we don’t believe this historical
range (6X to 53X trailing EPS) is particularly meaningful.
TEAM Communications Group CIBC World Markets
Our target price of $12 is predicated upon a P/E of 13X 2001. This is a 15% discount to
the long-term EPS growth rate we forecast. It translates into a 36% discount to the P/E on
the S&P 500 (23.5X).
Exhibit 1. Historical P/E for Trailing EPS
Source: Company data; CIBC World Markets.
The discount reflects two harsh realities of the independent TV production business: (1)
the low earnings visibility (firm deals for new productions are often signed only a few
months before they generate EPS), and (2) the market power of its key competitors (who
are vertically-integrated and can produce programming for their own distribution systems).
TEAM’s small market capitalization ($116 million) and light trading volume (averages
only 97,000 shares a day) also seem likely to hold the stock’s multiple back.
We believe the stock should head toward our target price as earnings visibility improves.
Therefore, announcements of firm orders for new shows are one of the keys to future stock
price action. Other potential catalysts include the successful negotiation of acquisitions
that are accretive to EPS and well structured output deals. If, over time, TEAM can
demonstrate an ability to regularly place new shows on the air and supplement this
production activity with accretive acquisitions an argument for multiple expansion can be
made.
TEAM’s multiple could also benefit from a successful expansion of its programming
capabilities in Germany. Indeed, Neuer Markt investors place healthy multiples on
German programming companies, with many trading at more than 30X 2001 EPS
estimates (in the Neuer markt). This likely reflects a perception that programming growth
opportunities are greater in Europe than in the U.S.
Longer term we believe TEAM itself should be viewed as a takeover candidate. Larger
media companies have shown an appetite for buying independent TV programmers that
build significant libraries. The long list of TV acquisitions includes: Spelling (to Viacom),
King World Productions (to CBS), All-American TV (to Pearson TV), Pearson TV (to
Bertelsmann), Robert Halmi (to Hallmark), and Rysher (to Paramount). However, we
believe this is unlikely to happen until TEAM is considerably larger. At its current size, it
is simply too small to make a difference to most larger players—and few mid-sized media
companies exist.
Potential Risks
In addition to the risk we discussed earlier—TEAM is unsuccessful moving shows from
active development into production and therefore cannot deliver the EPS gains we
forecast—we see two others:
1. Market related volatility. TEAM’s small market capitalization and light trading
volume (as well as price volatility in the Neuer Markt) subject its stock to potentially
large price moves even when its fundamental outlook is unchanged.
2. Disappointing acquisitions. As we noted earlier, management views acquisitions as a
source of future earnings growth and is actively pursuing them. It is possible,
however, that future deals prove dilutive to earnings and the stock could come under
pressure. We think this risk is low given TEAM’s acquisition objectives: to find
companies with positive cash flow from operations, commercially viable TV
programming libraries, and reasonable growth opportunities that could be pursued
with additional financial support from TEAM.
KEY FACTORS FOR LONG-TERM SUCCESS
Television programming is not an easy business. It requires a large upfront commitment
of capital (to produce the shows), yet the audience’s reaction is difficult to forecast in
advance, and returns are often spread out over a several year period (as the shows are sold
in foreign markets and later as reruns throughout the world). Few small production
companies have the financial resources to fund several simultaneous shows, and many fold
after hitting a prolonged period of disappointing releases. Additionally, the media
landscape is populated with large, vertically integrated companies (like Viacom/CBS,
AOL Time Warner, Disney, and News Corp). These companies increasingly create
programming for their own distribution platforms, which reduces the programming
opportunities for independent companies.
On the other hand, it’s not impossible for an independent production company to operate in
this environment if it targets the right sectors of the TV programming market. This is
something we think TEAM’s management has done successfully. It typically develops
programming ideas with niche cable networks in mind. These networks are looking for
original programming at a reasonable cost that plays well to their niche audiences.
By targeting this market, TEAM preserves its capital and lowers its financial exposure to
disappointing shows. At the same time, it avoids competition from large media
conglomerates who virtually ignore this market because the profit potential from hit shows
on niche cable networks is dwarfed by that of primetime network TV. Furthermore, the
increase in channel capacity of most domestic cable operators during the past several years
has stimulated the formation of new cable networks. These new networks should
ultimately increase the size of the programming opportunity.
Exhibit 2. Most of TEAM’s TV Shows Target Niche Cable Networks
Titles Produced By TEAM Communications Group
(distributor shown in parenthesis)
TV Series
Water Rats
Destination: Style (The Travel Channel)
Public Enemies
Strange Universe (in partnership with United/Chris-Craft stations)
Scenic Rail Journeys (PBS)
Simply Style (The Learning Channel)
Amazing Tails (Animal Planet)
Total Recall 2070 (Showtime and Syndication)
Conversations With Remarkable People (The Wisdom Network)
The Call Of The Wild (Animal Planet)
The World`s Most Mysterious Places (The Travel Channel)
TV Movies-Of-The-Week
Earthquake in New York (Fox Family Channel)
Source: Company data; CIBC World Markets.
In addition to targeting an appropriate niche, other key factors for long-term success in the
TV programming business include: (1) developing a steady stream of creative ideas, (2)
establishing good relationships with key buyers, (3) providing in-house production
expertise, and (4) maintaining financial discipline. We think Levin is building TEAM with
these factors in mind.
The following two sections provide background on TEAM’s management and offer a
glimpse into the company’s development process. We think they highlight the sound
relationships that TEAM has begun to build with the buying community. In our opinion,
these relationships are perhaps the most important link in the value-creation chain for an
independent production company. Indeed, a programmer’s chance of success improves
dramatically if it is in active dialog with several buyers, is aware of the holes in their
programming schedules, and knows the type of show with which they would like to fill
those holes.
MANAGEMENT BACKGROUND
TEAM’s Chairman and CEO, Drew S. Levin, is actively involved in the operation of the
company including, at times, in the creative process. His relationships with development
executives at the cable networks and within the production community are also valuable to
TEAM.
Prior to forming TEAM, Levin spent nearly 20 years in the TV business. He produced
and developed TV series such as Hollywood Stuntmasters, FX Masters, and Superstars of
Action for Discovery; Shadow Theater for USA Network; and over 200 hours of reality-based
and instruction series for The Learning Channel, Discovery Channel and PBS.
Levin also created and produced the Emmy Award winning series, Future Quest, starring
Jeff Goldblum, for the PBS Network.
In May, Levin appointed James Waldron as President of TEAM Entertainment. The fit
seems natural to us. Waldron joins TEAM from CAA where he headed the agency’s
international programming and first-run syndication arm and oversaw deals that were
packaged for cable networks. Together Levin and Waldron have over 4,000 hours of
original production experience.
Key members of management with development, production, and sales responsibilities
include:
· In the U.S., TEAM has three divisional heads: Declan O’Brien, who runs the drama
series division; Jane Sparango, who runs the reality division; and Philippe
Perebinossoff, who runs the long-form TV movie division. These executives bring a
combined experience of 60 years in the TV business to TEAM.
· In Germany, TEAM recently appointed Erhart Puschnig, the former head of
programming for RTL+ Network, as CEO of TEAM Entertainment Germany.
Puschnig’s programming expertise is well known in Europe. He was the visionary
who thought to program the new network’s prime-time lineup with shows from the Fox
Television Network (Married with Children, Beverly Hills 90210, The Simpsons).
He also acquired the WCW Championship Wrestling programs and the NASCAR
races. These programming acquisitions catapulted RTL+ to the top of the commercial
TV ranks in Germany.
· In London, Noel Cronin heads up TEAM Dandelion. Cronin founded Dandelion
Distribution, has a strong track record as a producer and distributor in Europe, and
has a first-hand understanding of the European distribution market.
· Larry Friedricks and Paula Fierman head up TEAM’s international sales divisions.
They have a combined experience of 50 years, heading up the international distribution
arm of several companies, including Kushner Locke, Fries Entertainment, and Jones
Entertainment.
FOUR PROGRAMMING CASE STUDIES
The following four case studies provide insight to the TV production process at TEAM.
They also demonstrate TEAM’s financially disciplined approach and its good relationship
with key buyers. Recall that these are two factors we consider crucial to long-term
success.
· Amazing Tails – A Highly Profitable Show Creatively Financed. When the cable
network Animal Planet was launched four years ago, TEAM approached them with an
idea for an animal- and people-friendly series. Animal Planet liked the idea, but was
still building a subscriber base and therefore not flush with cash to spend on
programming. To move the project along, Levin approached The InterPublic Group
with an idea of targeting this reality-based project to a specific advertising buyer.
Together they took the concept to a senior media buyer from McCann Erickson, who
represented Friskies Pet Food. They liked the series enough to negotiate a
comprehensive media buy for Animal Planet. This triggered a $70K per episode
license fee from Animal Planet for a three-year exclusive windows. The cost of
production: only $44K per episode. Gross to date of international rights exceeds $2
million. TEAM produced 48 half hour episodes of this series. Animal Planet did not
renew beyond the 1998 season.
· Total Recall 2070 – Expensive By TEAM Standards, But Still Profitable. Levin had
been following the success of the movie for many years and felt Carolco had not fully
exploited the brand. Therefore, TEAM attended an auction held during the liquidation
of Carolco Pictures and acquired the rights to create a spin-off from the movie for the
TV market. For this right TEAM paid $1.2 million. Levin’s instincts were right.
Indeed, he found a great interest when he pitched his plan to produce 22 one-hour
episodes for weekly syndication. We believe PolyGram paid $200,000 per episode for
US distribution and syndication rights; Showtime paid $175,000 per episode for a
pay-TV window; Miramax paid $119,000 per episode for worldwide video rights; and
Alliance Communications paid $250,000 for Canadian distribution rights and
worldwide co-production rights. Together TEAM and Alliance pre-sold Canal Plus
(France), Pro Sieben (Germany and Japan), and BSkyB (UK). In total, we believe the
first season grossed over $27 million. The show has not been renewed for a second
season. However, with a cost of production approximating $24 million we believe
TEAM booked a small profit on the deal.
· · The World’s Most Mysterious Places – Typical Reality Show For TEAM. This
project was developed with Travel Channel for its new prime-time schedule and is a
good example of a ‘typical’ reality-based series for TEAM. Travel Channel is owned
by Discovery, for which TEAM is a fairly regular supplier. The Travel Channel
approached TEAM seeking its ideas for a few projects and TEAM pitched an idea
about mysterious and unusual places across the world (Stonehedge, etc.). The Travel
Channel was interested enough for TEAM to update the initial six page treatment with
a full 26-episode outline. Travel Channel then agreed to pay a license fee for domestic
rights for a 3-5 year window that covered approximately 55%-60% of the budget.
After a final contract was signed, TEAM began shooting the series. The series is now
virtually completed. Generally TEAM sells the first cycle (1-3 years) of a reality
series like this one for $40K-$75K per half-hour in the foreign market. Therefore, by
the time it’s done with the first cycle, the series should already be profitable.
Furthermore, TEAM still has worldwide rights in perpetuity, not to mention a possible
renewal of individual episodes. The show premieres on July 18.
· Call of the Wild – The Latest Success For TEAM. This series has just been renewed
for a second season of 13 one-hour episodes, following an exciting launch on
Discovery’s Animal Planet. Team approached Clark Bunting, Senior Vice President
and General Manager of Animal Planet, to discuss the possibility of airing a dramatic
series and TV movies (something Animal Planet had not yet scheduled on its network).
Clark went to his senior management in July 1998 and they expressed great interest in
a one-hour series. TEAM then developed a dramatic series that they simply could not
resist based on the well loved Jack London novel, Call Of The Wild. The original
script was written by the noted theatrical writer, David Fallon, who created the two
White Fang movies for Disney. TEAM negotiated a license fee based upon a
minimum of 13 (up to 26) one-hour episode commitment. The license fee covered
approximately 26% of the production cost and TEAM’s Canadian production partners
in Vancouver guaranteed another 30% (for Canadian rights). TEAM completed the
first 13 episodes to rave reviews and is beginning to produce the second thirteen. We
understand foreign sales are also going well.
CURRENT PRODUCTION PIPELINE
Shows currently being produced by TEAM include two of the projects we highlighted
earlier: Call Of The Wild (a drama series for Animal Planet), and The World’s Most
Mysterious Places (a reality series for Travel Channel). In addition, TEAM is producing
Weird World (six specials for The Learning Channel). We expect the level of production
activity to expand dramatically over the next year.
As we noted earlier, TEAM has set the foundation for expansion in its TV business by
hiring several talented new executives, negotiating exclusive deals with outside producers,
and opening production operations in Europe. These changes have brought a high level of
energy to TEAM and resulted in a far more active development slate.
We understand that management is currently working with 84 distinct projects (drama
series, reality series, and TV movies) and that 30 of these have moved into active
development:
· The reality-series department has 15 shows in active development. These shows
primarily target cable networks such as Animal Planet, The Travel Channel, Fox
Family Channel, and The Learning Channel. A few also target broadcast station
groups.
· TEAM has 8 drama series in active development and several deals appear close to
being signed. The drama series also target cable networks such as FX, The Nashville
Network, TBS, SCI FI Channel, and Fox Family Channel. For a few of its higher-budget
concepts, TEAM is looking to bring in a domestic syndication partner and
together target TV station groups.
· The long-form department has 7 projects in active development for cable networks
such as HBO, Showtime, Starz/Encore, A&E, and TNT. These shows can also be
pitched to broadcast networks where they would likely be aired as movies of the week.
Another twelve projects are in earlier stages of development with scripts (or stories
upon which script would be based) being read by potential buyers.
More specifically, we believe TEAM is close to firm production/distribution deals on
several projects. These include a TV movie based on the Lufthansa heist at Kennedy
airport (through its newly formed relationship with Gary Hoffman), a feature-quality TV
movie based on the life of James Dean, a weekly series entitled Spartacus (for a cable
network or in first-run syndication), a drama series aimed at teenagers (called Vampire
High), and a new 13-part drama series for MTV Networks (which it would distribute
outside of North America)
FINANCIAL OUTLOOK
After delivering a two-fold increase in EPS in 1999 (to $0.41 from $0.20 on a diluted
basis prior to extraordinary items), we think TEAM will post flat EPS this year of $0.41.
This pause in EPS growth is not tied to a slowdown in programming momentum. Indeed,
we think revenue should jump 143% and operating income should grow 120% in 2000.
Instead, as previously stated, the flattening of EPS results is due to a meaningfully higher
share count (primarily from the offering in Germany).
Absent Acquisitions, EPS Should Flatten This Year
EPS could top our estimate if management successfully negotiates and closes an
acquisition, something we think it has been seriously pursuing. However, deals of this
nature are inherently difficult to forecast and we can find no logical way to quantify the
upside. Therefore, we plan to wait for deals to be announced before adding them to our
forecast.
But Growth Prospects For 2001 Look Robust
As we noted earlier, following the $32.4 million capital infusion in late 1999, TEAM has
taken steps to aggressively expand its programming operations. Most of these steps are
aimed at increasing the quality and quantity of programming in development. The end
game, of course, is to lift revenue by successfully placing more shows on the air. We note,
however, that it takes time to find good projects, move them into development, build
interest in the buying community, sign deals, and place the shows into production.
We think all of this activity should start to pay off by late 2000/early 2001, when we
expect the company to announce the start of several new projects. Indeed, we forecast a
jump in EPS to $0.90 from $0.41 in 2001. This should be driven by an increase in the
number of TEAM TV shows entering production (following successful pitches to the
buying community). Also likely to help lift earnings is an effort on TEAM’s part to seek
out and purchase more foreign rights to TV shows that are created by others. This is made
possible by last October’s Dandelion acquisition which provided TEAM with an
established European sales force. See Exhibit 3 for details.
New Production Revenue Is Key To 2001 EPS
Although it is impossible to predict which projects TEAM will ultimately produce in 2001,
we believe a reasonable production assumption is that TEAM gets orders for:
· another 26 episodes of Call Of The Wild (which also sell well overseas),
· one new reality series (or another season for Mysterious Places),
· two new drama series,
· and two movies-of-the-week.
We also assume TEAM picks up foreign rights to two movies-of-the-week and one first-run
drama. In addition, we believe TEAM plans to sell a package of 56 recently acquired
movies-of-the-week and features to domestic cable networks. Under this scenario—or one
that is similar—we believe TEAM can reach our revenue and EPS targets.
At this time, TEAM has firm orders for some, but not all, of these shows. Therefore, one
could argue that visibility for 2001 EPS is low. However, the programming library sale
that we discussed earlier improves the visibility somewhat. And TEAM’s robust
development activity (which we detailed in the section entitled “Current Production
Pipeline” on pages 9-10) gives us additional confidence.
Balance Sheet Healthy
We believe TEAM’s balance sheet is healthy enough to finance this aggressive production
schedule. At the end of March, TEAM had $22.5 million of cash and only $7.6 million of
debt. Its equity capital totaled $57.4 million. Although it is difficult to precisely pinpoint
cash needs for future production, we believe TEAM will not burn through this cash
position until mid 2001. Additionally, we believe TEAM can borrow against its license-fee
commitments which adds tens of millions of dollars to its borrowing capacity. See
Exhibit 4 for details.
A Quick Look At The Cost Side Of The Equation
The accounting standards of small programming companies got a bad reputation in the
investment community in the late 1980’s/early 1990’s. The problem: GAAP requires that
programmers match a project’s cost to its estimated lifetime revenue. Therefore the more
optimistic a programmer’s estimate for revenue in future years, the fewer costs that
programmer has to expense now. After a couple of small public companies ‘abused’ this
matching principal and held reported costs artificially low, investors have joked that
programmers can report profits until they file for bankruptcy. Programming companies
can also capitalize a large percentage of their overhead (and amortize it over the life of the
programming being produced).
In response to this potential issue, we note that accounting for programming costs is not a
science. In the past some companies have been far too liberal with their assumptions, and
investors have been burned. However, this is more likely to arise as an issue in the high-budget
world of movies and network TV shows—not the more modestly budgeted TV
business within which TEAM operates. Additionally, we believe TEAM’s financial staff,
led by an ex Arthur Andersen manager Timothy A. Hill, is fairly conservative. We believe
it forecasts a gross margin of 20%-30% on its average early-stage TV series, which is
conservative relative to its historical experience.
Please see Exhibits 3-4 for our forecasts on an annual basis through 2001, and Exhibits 5-
6 for forecasts on a quarterly basis this year.
Our quarterly EPS estimates are shown below.
1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Year
1999 Actual $0.09 $0.13 $0.14 $0.04 $0.41
2000E Current $0.02A $0.09E $0.14E $0.16E $0.41E
2001E Current --- --- --- --- $0.90E
Stock prices of companies (as of 7/31/00) mentioned in this report:
Alliance Communications (AACB-Toronto $13 3/4, BUY)(2,3)
America Online (AOL-NYSE $53 13/16, STRONG BUY)
British Sky Broadcasting (BSY-NYSE $109 1/4, Not Rated)
Canal Plus (CNPLY-OTC France $31.88, Not Rated)
Disney (DIS-NYSE $37 7/8, HOLD)
InterPublic Group (IPG-NYSE-$40 1/4, Not Rated)
News Corp. (NWS-NYSE $48 13/16, Not Rated)
Time Warner (TWX-NYSE $75 3/8, BUY)
Viacom (VIA’B-NYSE $66 3/8, BUY)
(2) CIBC World Markets, or one of its affiliated companies has performed investment
banking services for Alliance Communications.
(3) CIBC World Markets, or one of its affiliated companies has managed an offering or
co-offering for the securities of Alliance Communications.
Exhibit 3. Annual Income Statement, 1997 to 2001E
TEAM Communications Income Statement
($ in 000s)
1997 1998 1999 2000E 2001E
Revenue $6,876 $13,582 $24,062 $58,566 $135,100
Growth 97.5% 77.2% 143.4% 130.7%
Cost of Revenue $2,355 $9,076 $10,557 $43,125 $103,689
Percent of Revenue 34.3% 66.8% 43.9% 73.6% 76.8%
Growth 285.3% 16.3% 308.5% 140.4%
G&A $3,245 $3,274 $8,316 $4,050 $4,952
Percent of Revenue 47.2% 24.1% 34.6% 6.9% 3.7%
Growth 0.9% 154.0% (51.3)% 22.3%
Operating Income $1,275 $1,232 $5,189 $11,391 $26,459
Margin 18.5% 9.1% 21.6% 19.5% 19.6%
Growth (3.4)% 321.2% 119.5% 132.3%
Net Interest Income (Expense) ($828) ($700) ($722) $575 $155
Pretax Earnings $447 $532 $4,467 $11,966 $26,614
Tax Rate 0.0% 10.8% 46.0% 41.0% 41.0%
Provision for Taxes $0 $58 $2,055 $4,906 $10,912
Net Income Before Extr $447 $475 $2,412 $7,060 $15,702
Growth 6.2% 408.1% 192.7% 122.4%
Extraordinary Items $0 $70 $621 $0 $0
Net Income $447 $405 $1,791 $7,060 $15,702
Growth (9.4)% 342.1% 294.1% 122.4%
EPS before Extr, Basic $0.40 $0.26 $0.43 $0.51 $1.11
EPS before Extr, Diluted $0.25 $0.20 $0.41 $0.41 $0.90
Growth 105.0% (0.2)% 119.4%
EPS, Basic $0.40 $0.22 $0.32 $0.51 $1.11
EPS, Diluted $0.25 $0.17 $0.31 $0.41 $0.90
Avg Basic Shares 1,131 1,833 5,659 13,966 14,200
Avg Diluted Shares 1,822 2,434 5,928 17,250 17,484
Growth 33.6% 143.5% 191.0% 1.4%
Note: EBITDA $1,289 $1,245 $5,218 $11,693 $26,887
Source: CIBC World Markets.
Exhibit 4. Annual Flow Of Funds, 1997 to 2001E
Team Communications Balance Sheet & Flow of Funds
($ in 000s)
1998 1999 2000E 2001E
EBITDA $5,218 $11,693 $26,887
less... Cash Interest Expense (Income) $721 ($575) ($155)
less... Cash Taxes $2,055 $4,906 $10,912
less... Cap`l Expenditures $2,412 $7,060 $600
less... Change in Working Capl $4 $2 $1
less... Change in Programming Inventory $11,952 $13,106 $20,391
less... Change in Deferred Revenue ($87) $370 $0
less... Other Use (Source) of Cash $0 $0 $0
less... Other Use (Source) of Cash $0 $0 $0
FCF from Operations (Negative FCF) ($11,840) ($13,175) ($4,862)
Acquisitions $0 $8,000 $0
Asset Sales $0 $0 $0
Issue Common Stock ($37,726) ($2,716) $0
Proceeds from Exercise of Options/Warrants $0 $0 $0
Sale of Treasury Stock ($35) $0 $0
Other Use (Source) of Cash $0 $0 $0
Other Use (Source) of Cash $0 $0 $0
Other Use (Source) of Cash ($1,337) ($66) $0
Positive FCF (Negative FCF) $27,258 ($18,393) ($4,862)
BOP Net Debt (Cash) $2,891 ($20,585) ($3,185)
Change ($23,476) $17,400 $7,585
EOP Net Debt (Cash) $2,891 ($20,585) ($3,185) $4,401
Check with above $2,891 ($20,585) $0 $0
Avg Net Debt
COF
Interest Expense (Income)
Check with above (after sign reversal) $722 ($575) ($155)
Source: CIBC World Markets.
Exhibit 5. Quarterly Income Statement, 1998 to 2000E
TEAM Communications Income Statement
($ in 000s)
1Q99 2Q99 3Q99 4Q99 1999 1Q00 2Q00E 3Q00E 4Q00E 2000E
Revenue $3,502 $3,518 $6,253 $10,789 $24,062 $6,566 $11,500 $17,500 $23,000 $58,566
Growth 122.6% 114.2% 0.0% 162.2% 77.2% 87.5% 226.9% 179.8% 113.2% 143.4%
Cost of Revenue $2,561 $1,575 $1,920 $4,501 $10,557 $5,428 $8,095 $12,513 $17,089 $43,125
Percent of Revenue 73.1% 44.8% 30.7% 41.7% 43.9% 82.7% 70.4% 71.5% 74.3% 73.6%
Growth 575.8% 244.1% (62.0)% 41.0% 16.3% 111.9% 414.0% 551.7% 279.7% 308.5%
G&A $386 $653 $2,733 $4,545 $8,316 $725 $950 $1,100 $1,275 $4,050
Percent of Revenue 11.0% 18.6% 43.7% 42.1% 34.6% 11.0% 8.3% 6.3% 5.5% 6.9%
Growth (28.8)% 9.5% 149.4% 337.1% 154.0% 88.1% 45.4% (59.7)% (71.9)% (51.3)%
Operating Income $555 $1,290 $1,601 $1,743 $5,189 $413 $2,455 $3,888 $4,636 $11,391
Margin 15.9% 36.7% 25.6% 16.2% 21.6% 6.3% 21.3% 22.2% 20.2% 19.5%
Growth (15.0)% 119.3% 1390.3% -- 321.2% (25.6)% 90.4% 142.9% 165.9% 119.5%
Net Interest Income (Expense) ($119) ($91) ($180) ($331) ($722) $187 $149 $149 $90 $575
Pretax Earnings $436 $1,198 $1,421 $1,412 $4,467 $600 $2,604 $4,037 $4,726 $11,966
Tax Rate 20.0% 41.3% 40.0% 64.1% 46.0% 41.0% 41.0% 41.0% 41.0% 41.0%
Provision for Taxes $87 $495 $568 $905 $2,055 $246 $1,068 $1,655 $1,938 $4,906
Net Income Before Extr $349 $704 $852 $507 $2,412 $354 $1,536 $2,382 $2,788 $7,060
Growth (20.3)% 248.9% 5294.3% -- 408.1% 1.4% 118.3% 179.4% 449.9% 192.7%
Extraordinary Items $0 $248 $184 $189 $621 $0 $0 $0 $0 $0
Net Income $349 $456 $669 $318 $1,791 $354 $1,536 $2,382 $2,788 $7,060
Growth (20.3)% 125.8% 4131.6% -- 342.1% 1.4% 237.3% 256.2% 776.0% 294.1%
EPS before Extr, Basic $0.11 $0.18 $0.15 $0.03 $0.43 $0.03 $0.11 $0.17 $0.20 $0.51
EPS before Extr, Diluted $0.09 $0.13 $0.14 $0.04 $0.41 $0.02 $0.09 $0.14 $0.16 $0.41
Growth (62.2)% 13.2% 2432.9% -- 105.0% (76.6)% (29.5)% 0.3% 311.9% (0.2)%
EPS, Basic $0.11 $0.11 $0.12 $0.03 $0.32 $0.03 $0.11 $0.17 $0.20 $0.51
EPS, Diluted $0.09 $0.09 $0.11 $0.04 $0.31 $0.02 $0.09 $0.14 $0.16 $0.41
Avg Basic Shares 3,149 4,006 5,439 10,040 5,659 13,364 14,100 14,200 14,200 13,966
Avg Diluted Shares 3,835 5,335 6,322 8,220 5,928 16,647 17,384 17,484 17,484 17,250
Growth 110.5% 192.8% 114.5% 134.6% 143.5% 334.1% 225.9% 176.6% 112.7% 191.0%
Note: EBITDA $552 $1,299 $1,605 $1,762 $5,218 $418 $2,537 $3,995 $4,743 $11,693
Source: CIBC World Markets.
Exhibit 6. Quarterly Flow of Funds, 1998 to 2000E
Team Communications Balance Sheet & Flow of Funds
($ in 000s)
1Q99 2Q99 3Q99 4Q99 1999 1Q00 2Q00E 3Q00E 4Q00E 2000E
EBITDA $552 $1,299 $1,605 $1,762 $5,218 $418 $2,537 $3,995 $4,743 $11,693
less... Cash Interest Expense (Income) $119 $91 $180 $331 $721 ($187) ($149) ($149) ($90) ($575)
less... Cash Taxes $87 $495 $568 $905 $2,055 $246 $1,068 $1,655 $1,938 $4,906
less... Cap`l Expenditures $0 $20 $29 $124 $2,412 $1,378 $50 $50 $50 $7,060
less... Change in Working Capl ($660) ($1,230) $1,358 $6,557 $4 ($1,801) ($5,530) $2,037 $9,835 $2
less... Change in Programming Inventory $2,782 $2,966 $3,931 $2,273 $11,952 $8,935 ($914) $414 $4,671 $13,106
less... Change in Deferred Revenue $387 $0 $0 ($474) ($87) $370 $0 $0 $0 $370
less... Other Use (Source) of Cash $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
less... Other Use (Source) of Cash $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
FCF from Operations (Negative FCF) ($2,164) ($1,042) ($4,462) ($7,955) ($11,840) ($8,523) $8,012 ($12) ($11,660) ($13,175)
Acquisitions $0 $0 $0 $0 $0 $0 $8,000 $0 $0 $8,000
Asset Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Issue Common Stock ($604) ($2,754) ($5,176) ($29,192) ($37,726) ($2,716) $0 $0 $0 ($2,716)
Proceeds from Exercise of Options/Warrants $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sale of Treasury Stock ($35) $0 $0 $0 ($35) $0 $0 $0 $0 $0
Other Use (Source) of Cash $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Use (Source) of Cash $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Use (Source) of Cash ($1,026) $1,107 $840 ($2,258) ($1,337) ($66) $0 $0 $0 ($66)
Positive FCF (Negative FCF) ($499) $605 ($126) $23,496 $27,258 ($5,740) $12 ($12) ($11,660) ($18,393)
BOP Net Debt (Cash) $2,891 $3,390 $2,785 $2,911 $2,891 ($20,585) ($14,845) ($14,857) ($14,845) ($20,585)
Change $499 ($605) $126 ($23,496) ($23,476) $5,740 ($12) $12 $11,660 $17,400
EOP Net Debt (Cash) $3,390 $2,785 $2,911 ($20,585) ($20,585) ($14,845) ($14,857) ($14,845) ($3,185) ($3,185)
Check with above $3,390 $2,785 $2,911 ($20,585) ($20,585) ($14,845) $0 $0 $0 $0
Avg Net Debt $3,141 $3,088 $2,848 $2,440.89 ($17,715) ($14,851) ($14,851) ($9,015)
COF 15.2% 11.8% 25.3% 54.2% 4.2% 4.0% 4.0% 4.0%
Interest Expense (Income) ($149) ($149) ($90)
Check with above (after sign reversal) $119 $91 $180 $331 $722 ($187) ($149) ($149) ($90) ($575)
Source: CIBC World Markets.
Exhibit 7. Management and Board Profile
Key Officer Age 1999 Cash
Compensation (a)
Shares
Owned (b)
Options
Held (c)
Major Experience
Drew S. Levin 46 $550,000 450,123 1,950,000 Founder, Chairman, and CEO of TMTV since
1995. Prior to this, he was President of DSL
Productions Inc. He received an Emmy award for
producing “Future Quest.”
Timothy A. Hill 33 $175,000 0 50,000 Chief Financial Officer, Senior VP, & Secretary
since 1998. Prior to this, he was Controller for
Spelling Films, Inc.
James Waldron N/A N/A N/A N/A President of Team Entertainment Group since July
2000. Prior to this, he was a top agent at Creative
Artists Agency and also head of international
programming and first-run syndication.
Erhart Puschnig N/A N/A N/A N/A CEO of Team Entertainment Germany. Former
head of programming for RTL+ Network.
Noel Cronin N/A N/A N/A N/A Heads up Team Dandelion Ltd. Founder of UK
based Dandelion Distribution.
Larry Friedricks 62 $220,000 6,640 60,000 Co-President of Team International. Co-founded
Paular Entertainment LLC in 1996.
Paula Fierman 51 $180,000 7,066 30,000 Co-President of Team International. Prior to this,
she was a consultant for the company since 1998.
Declan O’Brien 34 N/A N/A 2,083 Senior VP Development. Prior to this, he has
worked for several television and motion picture
companies located at the Walt Disney Studios.
Jane Sparango 37 N/A N/A 833 Senior VP Development & Production. In her 17
year career in broadcasting, she has produced over
550 hours of television.
Eric Elias 44 N/A N/A 62,500 Senior VP Business & Legal Affairs.
Comments
(a) Figures are based on a full year compensation.
(b) Includes shares owned through holding companies. Does not include options.
(c) As of 3/31/00 includes both exercisable and unexercisable options
Board of Directors Age Shares Owned Affiliation
Drew S. Levin 46 See above See above
Alan D. Liker N/A N/A 40,000 Former Law Professor at Harvard University.
Currently sits on the boards of Herbal Life &
Shaklee.
Michael Jay Solomon 61 20,000 30,000 Chairman & CEO of Solomon Broadcasting
International
W. Russell Barry 63 0 30,000 Partner in Bandit Films
Sources: Company financial statements; CIBC World Markets Corp.