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TVN S.A. (TVNN.WA): Lowering estimates to
reflect increase in 'n' stake; remains Sell
Company Name:  TVN S.A.                                Ticker: TVNN.WAPrice:
9.26                            52-Week Price Range (PLN): 24-9
Year             Net         EPS          .           .         Gross
To            Income      Diluted    Dividend       P/E        Yield
December         PLN         PLN         PLN          X           .
2007            316.60       0.92        0.40       10.07        4.32
2008            373.91       1.08        0.57        8.57        6.16
2009E           178.37       0.54        0.30       17.06        3.24
2010E           180.22       0.58        0.09       16.02        0.97
2011E           293.29       0.94        0.14        9.80        1.51
Price Performance (absolute):    1m: -4%   3m: -26%    12m: -61%
Price Performance (relative):    1m: +5%   3m: -13%    12m: -26%
Stock Rating:      S
What's changed
TVN has announced that it has increased its stake in the ‘n’ satellite pay-TV platform
from 25% to 51%. TVN is paying €46.2 mn/PLN212 mn in cash and a maximum earnout
of €60 mn payable in 2010E. We adjust our forecasts for the full consolidation of n from
2009E. Our 2009E/10E EPS falls by 32%/30%.

Implications

The acquisition price for n implies a 2009E EV/sales of 2.0x including earnouts (1.9x
excluding), compared with BSkyB and US pay-TV operators trading on an average 1.3x.
We do not forecast a positive earnings contribution from the acquisition before 2011E,
and there is strong competition from the two established satellite pay-TV operators, Polsat
and Cyfra+, in the Polish market. In terms of leverage, the acquisition takes 2009E net
debt/EBITDA from 1.0x to 2.6x and we now assume that the share buyback is not carried
into 2010E to preserve liquidity, and that the dividend is cut to PLN0.09 by 2010E. In
terms of returns, the company has yet to provide pro forma balance sheet data. However,
given the considerable increase in gross cash invested through n’s aggressive accounting
policy of capitalizing and depreciating set-top boxes (BSkyB, Premiere and Canal+
expense set-top box costs) and high capex associated with growth in gross additions, we
expect a marked deterioration in TVN’s cash returns, in a market which has penalized low
returns.
Valuation
Our 12-month price target falls from PLN9.58 to PLN7.1 and implies 4.5x EV/EBITDA
on normalized earnings and 13x 2009E P/E. It is based on EV/EBITDA and DCF
methodologies.
Key risks
Key upside risks to our view and price target include Polish advertising resilience,
greater-than-expected cost savings, and greater market risk appetite for cyclical exposure.
The Goldman Sachs Group Inc. does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research