The secondary public offering of 25,500,000 ordinary shares of RTL Group (17% stake) by Bertelsmann is expected to end today, on 29 April 2013. The final offer price (price range was between € 54 and € 62) will be set and announced this evening.
As a result ofthe placement, RTL Group’s free float will increase significantly, tripling to about 24% of the share capital. This implies that RTL Group will become a candidate for BEL20 membership, for which the two criteria are free float market cap and free float velocity of at least 35%. The free float market cap of RTL Group will reach € 2.1-2.2bn, which would put RTL in 13th position on the BEL20. The free float velocity however is still uncertain. Note that despite the new listing on the Frankfurt Stock Exchange,RTL Group’s free float velocity will only be based on the velocity of the existing listing on Euronext Brussels.
We reiterate our upgraded Accumulate rating and € 70 target price from last week. RTL’s fundamentals are solid: i) a strong competitive position as Europe’s largest broadcaster and production company ii) a strong business portfolio with no exposure to print and increasing exposure to non-linear sales, iii) strong profitability and cash flow generation and iii) a solid balance sheet that will be leveraged to 0.5-1.0x net debt/EBITDA. We therefore expect the company to pay out an extraordinary dividend in FY13-FY14, leading to an attractive double-digit dividend yield. Valuation has also become reasonable now that the high buy-out premium has disappeared.