Recommendation Change- GMA Network Q1 2018 Results Review

Quality-Value Investing

Marc Melendez, CFA

Emerging Market Small and Mid Cap Equities

Reperio Capital

Reperio Capital Research was founded in 2013 with the goal of better serving the investment community with in-depth, high quality, value oriented research.

Reperio means to discover in latin. Using value investing principles, we aim to discover a minimum of 12 investment opportunities per year within the Emerging Markets Small and Mid Cap universe.

We take a business owners perspective with a long term investment horizon. We conduct bottom up, fundamental research. We focus on downside risks and require a significant margin of safety in any investment to prevent the permanent loss of capital. All factors differentiating our research from the short term, trading focus of traditional research providers.

Equity Bottom-Up

INVESTMENT THESISGMA Network is a competitively advantaged firm enjoying economies of scale with customer captivity and regulatory barriers to entry. Under the base case, the company offers a 15.7% five year annualized return (12.2% FCF yield + 3.5% FCF growth) and a 10.5% five year annualized return (10.5% FCF yield + 0% FCF growth) under a more conservative scenario. There are a number of reasons the market is overlooking the investment opportunity of GMA Network. The company’s shares are not very liquid. There is concern over a shift of ad spending away from traditional media to the internet. The industry recent period is defined by competition for audience share leading to an increase in spending on content and administrative expenses. Due to political advertisements in the first half of 2016, sales growth in the first half of 2017 was negative. As GMA returns to revenue growth in the second half of 2017, continues to execute, and the free to air sector within the Philippines continues to hold off threats from the internet, the market should recognize the value of the assets.Foreigners can only purchase Philippine Deposit Receipts (PDR), which are fully fungible to common shares for Filipinos. PDRs are the more liquid of the two securities.

INVESTMENT THESISGMA Network is a competitively advantaged firm enjoying economies of scale with customer captivity and regulatory barriers to entry. Under the base case, the company offers a 15.7% five year annualized return (12.2% FCF yield + 3.5% FCF growth) and a 10.5% five year annualized return (10.5% FCF yield + 0% FCF growth) under a more conservative scenario. There are a number of reasons the market is overlooking the investment opportunity of GMA Network. The company’s shares are not very liquid. There is concern over a shift of ad spending away from traditional media to the internet. The industry recent period is defined by competition for audience share leading to an increase in spending on content and administrative expenses. Due to political advertisements in the first half of 2016, sales growth in the first half of 2017 was negative. As GMA returns to revenue growth in the second half of 2017, continues to execute, and the free to air sector within the Philippines continues to hold off threats from the internet, the market should recognize the value of the assets.Foreigners can only purchase Philippine Deposit Receipts (PDR), which are fully fungible to common shares for Filipinos. PDRs are the more liquid of the two securities.

GMA Networks/GMA Holdings (Initiation) - High Quality, Undervalued Media Asset

Gma Holdings

GMA Networks/GMA Holdings (Initiation) - High Quality, Undervalued Media Asset