CME ups its FY2006 target by 4% on the top line

As expected CME upped its total revenues guidance for 2006 by 4% to USD 585m, which is 4.5% above our original forecast of USD560m. The improvement is driven by 5% higher guidance for TV Nova to USD 200m and 3.7% higher for the core stations (Slovakia, Romania, Ukraine and Croatia) to USD 363m for the full year. On the other hand, guidance for Croatia was lowered by 12.5% to USD21m for the full year. Guidance for TV Nova for 2007 and 2008 remained unchanged for revenues at USD230m (+15% y/y) and USD270m (17% y/y) respectively driven by further increases in TV ad prices and for EBITDA at USD135m and USD170m respectively.

Consolidated EBITDA estimate remained unchanged at USD204m, which is in line with our estimate of USD207m. Segment EBITDA estimate for the Czech Republic was increased by 5.6% to USD95m, which is also 5.6% above our forecast of USD90m. The segment EBITDA remained unchanged due to negative EBITDA of USD4m from a newly launched channel in Ukraine, TV Kino, which is aimed at a group between 16-35.

Ukraine seems to have a huge potential as the TV ad market is expected to growth to USD1bn by 2010/11 from USD280m in 2005. CME wants to catch the growth by acquiring more regional channels in Ukraine.

Our view: We expected CME to revise its guidance following the release of better than expected 2Q06 results, which left the FY2006 guidance unchanged. The focus has been on the new guidance for TV Nova. While the 5% top line guidance increase for the full year does not seem to high, from the 2H06 prospective only the increase equals 11% as the 1H06 has been already delivered. Finaly, CME’s management has been rather cautious in providing guidance and therefore there is a fair chance that it will be beat. Further more, given the potential in Ukraine license renewal and settlement of a court dispute there should provide further trigger for CME’s shares.