We reaffirm our long-term Neutral recommendation on Grupo Televisa S.A. (TV - Analyst Report). The company’s fourth quarter of 2012 financial results easily outpaced the Zacks Consensus Estimates.
Why Kept at Neutral?
The stock price of Televisa has moved up nearly 42% in the last year, significantly outpacing the S&P 500 return of just 22.9% over the same period. Televisa is currently trading at the high end of its 52-week price range. With respect to several valuation metrics, the stock is also trading at significantly higher multiples compared to the S&P 500. We believe the company is currently fairly valued and the stock price will not provide above market gains any time soon. Televisa currently has a Zacks Rank #3 (Hold).
Balanced View on Televisa
Recent telecommunications industry reforms bill of the Mexican government may pave the way for Televisa to capture a large chunk of the market share. According to the bill, the newly formed regulator, the Federal Telecommunications Institute, will have the power to force any company to divest some of its assets if it controls more than 50% market share in any segment.
Currently, America Movil SAB (AMX - Analyst Report) and Telmex control nearly 70% and 80% of the Mexican wireless and wireline telephone markets, respectively. Moreover, both these companies are closely controlled by the world’s largest telecom tycoon, Carlos Slim. Further, Telefonica S.A. (TEF - Analyst Report) commands around 20% of the Mexican wireless market share. Any shake up of the existing telephone market structure in Mexico may turn beneficial for Televisa. Earlier, in 2010, Televisa abandoned its wireless venture with Nextel de Mexico, a subsidiary of NII Holdings Inc. (NIHD), due to prolonged legal battles.
In the same coin, the telecommunications industry reforms bill of the Mexican government may go against Televisa, as the company currently controls nearly 70% of the country’s broadcast TV market. Furthermore, TV Azteca, a sister concern of Grupo Iusacell, commands nearly 25% of the Mexican TV market. TV Azteca and Grupo Iusacell are the holding companies of Grupo Salinas.
Thus, Televisa and Azteca form a perfect duopolistic market structure in Mexico. The regulator may well ask Televisa to disinvest some of its broadcasting assets, which in turn will reduce Televisa’s market power and create an opportunity for Carlos Slim to enter the Mexican TV market.